Cautious optimism ahead of manufacturing, labour data publication

The key economic data releases this week will include the purchasing managers’ index (PMI) data from Singapore and several countries around the world today, as well as the United States’ labour data on Friday.

The latter is important in driving the direction of US interest rates, which will in turn affect Singapore’s interest rates.

PMI surveys are among the earliest indicators of a change in the economic cycle.

Readings above 50 imply manufacturing expansion, while readings below 50 indicate contraction. In Singapore and across the region, such survey data has had low readings of about 49 to 50, pointing towards flat economic trends.

Most forecasters are expecting such levels to continue. But in view of the improvement in manufacturing trends across the region last month, there has been some cautious optimism that survey data could return to levels above 50.

Second, we are paying attention to the US employment data, which will be released on Friday.

Unemployment has been declining steadily to levels that are deemed more “normal” by the US Federal Reserve.

As such, there may not be a need to maintain accommodative monetary policies. Forecasters estimate that, for April, 190,000 jobs were created and the unemployment rate will fall to 4.9 per cent.

If these projections are met or surpassed there will be some pressure for US interest rates to rise, and the US dollar to strengthen. This also means that there could be some upward pressure on Singapore’s interest rates.

As manufacturing and labour data could signal an improvement in the economy, the market will keep a watchful eye over this week’s developments.

ABOUT THE AUTHOR: Anthony Raza is head of Multi-Asset Strategy at UOB Asset Management.