Will jobs data put further pressure on the Federal Reserve?

Will the pace of US hiring slow?

Hiring in the US is forecast to slow in May, following months of gains that have helped make the case for the Federal Reserve to keep interest rates high.

The labour department is expected to report on Friday that the US added 193,000 jobs in May, according to economists polled by Reuters, down from the 253,000 jobs added in April, but above the level added in March. The unemployment rate is expected to be up slightly at 3.5 per cent, although still hovering around 50-year lows. Average hourly earnings are expected to rise 0.3 per cent month over month, lower than the 0.5 per cent recorded in April.

The data will be a crucial part of the Fed’s deliberations when it next meets in June. Although the central bank has indicated it may be ready to pause its historic cycle of rate increases, odds in the futures market are split on whether or not the it will raise interest rates one more time. Persistent inflation has kept pressure on the Fed, and a strong jobs market — which typically suggests higher wages — is one source of that inflation. Kate Duguid

Can China’s manufacturing sector return to growth?

With the consensus on China’s growth outlook now decidedly dim, markets will be on lookout for any signs of an economic uptick — in particular, any outperformance by the official manufacturing purchasing managers’ index on Wednesday.

Despite strong spending by consumers during the long Labor Day holiday, economists polled by Bloomberg expect the gauge of factory activity to come in at 49.6 for May, up slightly from last month’s reading of 49.2 but still below the 50-point threshold that separates growth from contraction. Meanwhile, the non-manufacturing PMI, which includes the services and construction sectors, is tipped to tick down a full point to 55.3.

However, analysts at Goldman Sachs say the weak readings from April may only be a blip, despite advance signs of sluggish underlying growth. They predict a rebound to 49.8 for manufacturing, just shy of ending contraction, and expect non-manufacturing activity to rise to 57 on the back of a strong rebound in travel during the holiday.

Surprise strength — or weakness — could move the offshore exchange rate of the renminbi, which trades primarily in Hong Kong and is subject to fewer restrictions than the onshore rate. Last week strategists at UBS repeated their recommendation to short the offshore exchange rate against the dollar, euro and yen, noting that with “China’s May activity tracking weak, the [offshore rate] looks vulnerable to further weakness”. Hudson Lockett

Is eurozone core inflation still rising?

A sharp fall in eurozone inflation figures for May is unlikely to provide much relief for European Central Bank policymakers, who will be more focused on the stickiness of core price pressures beyond energy and food.

The headline rate of eurozone inflation is set to fall to 6.1 per cent, down from 7 per cent in the previous month, when the figures are released on Thursday, according to Goldman Sachs. However, core inflation would only dip from 5.6 per cent in April to 5.5 per cent in May, Goldman forecast.

The introduction of a subsidised €49 monthly public transport ticket in Germany will only partly offset increases in holidays, air fares and other travel prices, Goldman added.

Several members of the ECB governing council, including the heads of the German, French and Dutch central banks, last week said they expected to raise interest rates at least a couple more times to keep downward pressure on core price inflation.

“We do not expect the drop in core inflation, if it materialises, to meet the threshold required by the ECB to pause rate hikes,” economists at BNP Paribas said in a note to clients, adding that rate-setters have said “a sustained decline in core inflation is needed to pause hiking”.

Services prices — which make up almost two-thirds of core inflation — are set to continue rising close to the eurozone record rate of 5.2 per cent reached in April, BNP Paribas predicted, because of “tight labour markets and wage growth that doesn’t show any signs of abating”. Martin Arnold