Overnight Headlines and Seven Items for the Day Ahead

Market strategists at Nomura, including Pooja Kumra, highlighted the following five headlines overnight and said investors should keep they eye on the following seven items for the day ahead:

Headlines:

• Euro area: The final estimate for the PMI services in May was 53.2 (Consensus: 53.5; Previous: 53.5). It was 56 (Consensus: 56.4; Previous: 56.4) for Germany and 49.1 (Consensus: 49.2, Previous: 49.2) for France. The second estimate for Q1 euro area GDP showed an increase of 0.2% unchanged from the first estimate (Consensus: 0.2% q-o-q).
• UK: The services PMI in May was 58.6 (Consensus: 58.2; Previous: 58.7).
• Australia: GDP growth was 1.1% q-o-q in Q1, for an annual rate of 3.5% (Consensus and Nomura: 0.9%). This was the strongest quarter since Q1 2012.
• Philippines: The fiscal balance swung into a record surplus of PHP80.9bn in April from a PHP40.2bn deficit in March.
• South Korea: Markets were closed for local elections; exit polls are scheduled to be released at 6pm local time.

The Day Ahead

• G7 summit in Brussels.
• ADP US employment: In line with our forecast for BLS private nonfarm payrolls, we forecast ADP private employment gained an additional 220k jobs in May (Consensus: 210k; Previous: 220k).
• US productivity Q1, final: The BLS reported in its first estimate that productivity declined by 1.7% in Q1, reflecting the drop in GDP growth that quarter. With the BEA revising down Q1 GDP growth, Consensus expects Q1 nonfarm productivity to be revised down to a 3.0% decline.
• US trade balance: Based on container traffic data, we expect exports to remain unchanged in April, with a decline in imports. This would lead to a slight narrowing of the trade deficit to $39.4bn in April from $40.4bn in March (Consensus: $40.8bn). Note that annual trade revisions will be released along with the April trade data.
• ISM US nonmanufacturing: The ISM non-manufacturing headline index surpassed expectations in April, jumping to an eight-month high, corroborating other business surveys that pointed to a bounce back in activity in Q2. Business surveys have again pointed to a solid pace of activity in May. Thus, we forecast the index to remain relatively high at 55.0 in May (Consensus: 55.5; Previous: 55.2).
• Fed Beige Book: We expect the Beige Book – prepared for the 17-18 June Federal Open Market Committee (FOMC) meeting – to help describe the state of economic activity in May and early June. Incoming data since the previous Beige Book point to a steady pace of economic activity after a bigger rebound earlier in the quarter. We will also look to see how regional contacts characterize the status of the housing markets.
• Canada BoC policy meeting: We believe the Bank of Canada (BoC) will leave rates at 1.00% at this week‟s meeting and keep its policy stance unchanged, reiterating that it is firmly neutral. We believe the central bank is likely to repeat its statement about the importance of downside risks to inflation, especially as core inflation remains low. However, with inflation having likely bottomed and expected to trend higher in 2014, there is a risk that the BoC could tone down its level of concern. We maintain our base case, in which the BoC remains on hold until H1 2015 (see BoC Preview: Inflation still a concern, 2 June 2014).

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