Friday preview: US non-farms, Spanish no-confidence, Italia non lo so

Friday will be a split-screen day between America, as the new metals tariffs come in to play and as the first day of June it will be US non-farm payrolls day, with political events in Italy and Spain also in focus.

In Spain, after Basque party the PNV said they will vote against Prime Minister Mariano Rajoy in a vote of confidence, traders will be watching to see if he steps down to neutralise the confidence vote, calls elections or accepts the vote that could see his entire Cabinet given the heave-ho.

Unless an announcement is made overnight, Italian populists are aiming to reach an government agreement on Friday.

In UK and European data the latest round of purchasing managers' index surveys will kick off on Friday with a manufacturing survey from IHS Markit, with individual readings including for Germany, France, Italy and Spain.

As for the UK, the market is expecting the PMI to fall to 53.5 for May from 53.9 a month earlier. After April PMIs didn’t provide much in the way of evidence that activity was recovering from the disruption of the Beast from the East in the first quarter, economists at RBC Capital Markets said they did not think manufacturing will provide the necessary kick to get GDP indicators for the second quarter firing.

Those at Barclays were in agreement with the consensus that the May PMI will continue to edge lower, with a lack of support from global momentum and a headwind from "lingering domestic uncertainties with regards to the outlook for Brexit".

The main event in the USA is the payrolls and wages. For the May employment report, the market is expecting around 190,000 new jobs added, which would be an improvement from April’s disappointing increase of 164,000. The unemployment rate is seen staying at 3.9% and average weekly earnings growth to rise to 0.2% month-on-month from 0.1%, leading to weekly pay growth strengthening to 2.7% year-on-year in May from 2.6% in April.

After last week's Fed minutes reinforced the expectation that the US central bank will raise interest rates when it meets later in June, the payrolls numbers are not expected to alter the market's opinion.

"The last two months have fallen short of consensus forecasts so another miss in the absence of upside revisions would rattle markets and lead to a pull-back in the US dollar," said analyst David Morrison at GKFX.

"Recently, traders have paid particularly close attention to average hourly earnings. The unexpected jump reported at the beginning of February was cited as one of the triggers for the sharp sell-off in equity markets.

"However, unless earnings come in significantly higher than the +02% month-on-month expected, they could be less of an issue given recent comments from members of the Federal Reserve. The Fed has made it clear that they not only expect inflation (as measured by Core PCE) to rise above their 2% target, but will be quite relaxed about an overshoot. As far as investors are concerned, this suggests that the Fed is unlikely to tighten monetary policy more aggressively than currently forecast should inflation continue to pick up this year."

Later on Friday afternoon the forward-looking indicator of ISM manufacturing PMI will come on the back of some sharp falls since February this year. After a reading of 57.3 in April the ISM is expected to recover to 58.2 but, said Morrison, "another weak number would lead analysts to downgrade their forecasts to 2nd quarter GDP. If so, expect market to dial down on Fed hawkishness. Bear in mind that that higher inflation with lower growth means stagflation. Bad for bonds and equities."

Friday June 01

INTERNATIONAL ECONOMIC ANNOUNCEMENTS

Auto Sales (US) (20:30)

Construction Spending (US) (15:00)

ISM Manufacturing (US) (15:00)

ISM Prices Paid (US) (15:00)

Non-Farm Payrolls (US) (13:30)

PMI Manufacturing (GER) (08:55)

PMI Manufacturing (EU) (09:30)

PMI Manufacturing (US) (14:45)

Unemployment Rate (US) (13:30)

UK ECONOMIC ANNOUNCEMENTS

PMI Manufacturing (09:30)

FINALS

System1 Group

FINAL DIVIDEND PAYMENT DATE

Admiral Group, BAE Systems, Bodycote, Clarkson, Elementis, H&T Group, Harworth Group, Hochschild Mining, Informa, McColl's Retail Group , North Midland Construction, Playtech, Porvair, Rightmove, Robert Walters, Robinson, St James's Place, Strix Group , TI Fluid Systems, Total Produce

INTERIM DIVIDEND PAYMENT DATE

Mcbride, Sage Group, Smart (J) & Co., Symphony International Holdings Ltd.

QUARTERLY PAYMENT DATE

JPMorgan Claverhouse Inv Trust

SPECIAL DIVIDEND PAYMENT DATE

Bodycote, Symphony International Holdings Ltd. AGMS GAN, Total SA