Week ahead: RBA-RBNZ divergence plus US nonfarm payrolls

Central banks are back in action this week with the Reserve Bank of Australia and Reserve Bank of New Zealand – one set to pause and the other likely to hike. Meanwhile US ISM PMIs will be the focus for the world’s largest economy and what it might mean for the Fed’s hiking cycle ahead of the key nonfarm payrolls employment report at the end of the week. European markets will be shut for Good Friday - Happy Easter! 

Here are the week’s key events: 

Monday 

The US manufacturing sector is the focus with the latest ISM PMI report. The previous report showed economic activity in the manufacturing sector contracted in February for the fourth consecutive month, following a 28-month period of growth. Worryingly for the Fed, the prices paid component jumped to an inflationary 51.3 from 44.5 in Jan – underlying the stickiness of inflation. Markets will be especially looking to see whether there is any further incremental increase in the price component. 

Tuesday 

RBA likely to pause: Inflation has cooled and officials at the Reserve Bank of Australia have already signalled they could pause. Minutes from the March meeting said: “Members agreed to reconsider the case for a pause at the following meeting, recognising that pausing would allow additional time to assess the outlook for the economy.” Meanwhile, Australian inflation slowed to its lowest in eight months at 6.8% vs expected 7.1% and 7.4% previously. This underlines the case for the RBA to pause its hiking cycle. 

Wednesday 

By contrast, the Reserve Bank of New Zealand is expected to raise rates. ANZ says it expects the RBNZ will raise the Official Cash Rate (OCR) 25bps to 5.0% at its Monetary Policy Review, whilst a 50bps hike is more likely than a pause despite “global financial sector wobbles [suggesting] a degree of caution is appropriate”. RBNZ officials believe rates are in contractionary territory but are not yet confident that inflation expectations are under control. The US ISM services PMI and ADP nonfarm employment data will be the highlights of the later session. 

Thursday 

The loonie comes out of the shadows a bit today with the latest employment report coming a day before the US. We’ll also be watching the Canadian Ivey PMI for clues about what the Bank of Canada may do next.  

Friday 

Good Friday in Europe; Jobs Day in the US: The US nonfarm payrolls report is the only show in town as market participants eye whether there are any signs of cracks in the labour market. Jobs growth remains strong. Last month was the same old: wages up, jobs growth still strong, unemployment up a bit. Labour market participation was up, with the labour force back to pre-pandemic levels. Wage growth month on month slowed but year on year +4.6% vs 4.4% previously. If inflation remains elevated and the labour market doesn’t crack the market may need to reprice once more for higher for longer – unless the banks go through another crisis.