UK vehicle registrations rebound in April

Chris Scicluna

Tech leads US equities lower Tuesday; UST yields down only slightly after Yellen rate comments; most major Asian markets closed for holidays today, other markets mixed
Large-cap technology stocks came under increased downward pressure on Tuesday, with the likes of Apple, Tesla and Amazon leading the Nasdaq to a 1.9% loss. So, while industrial and financial stocks made gains, a 1.9% decline in technology stocks led the S&P500 to a 0.7% loss. The risk-off tone in equity markets impacted the Treasury market, with the 10Y UST yield closing down 1bp at 1.59% – above the session lows after Treasury Secretary Yellen was reported to have acknowledged that President Biden’s spending proposals might lead to a modest rise in interest rates (as they surely would if successful in boosting the economy). Queried about whether she was treading on dangerous ground, Yellen later clarified that she was well aware of the Fed’s independence and was neither predicting nor recommending rate hikes.

Turning to the Asia-Pacific region, markets remained closed for national holidays today in both Japan and mainland China (both will reopen tomorrow). And so, with South Korea also closed today for a national holiday, many Asian investors were on the side-lines today. Amongst those Asian markets that were open, stocks fell by more than 1% in Singapore and Thailand, but were down less severely in Hong Kong and Taiwan (the latter having fallen 4% over the prior four sessions). In the Antipodes, the ASX200 rose 0.4% as building approvals set a cracking pace in March and the composite PMI was confirmed at a record high in April, and yet Aussie bond yields followed UST’s slightly lower. By contrast, Kiwi equities fell and the 10Y bond yield rose 5bps following news of an unexpected decline in the unemployment rate in Q1, as investors mulled the possibility of a less dovish RBNZ at the next meeting on 26 May (see more on the Antipodean data below).

UK vehicle registrations rebound in April but remain well down from norms for the month
Like the first figures to be released earlier this week from the euro area member states (e.g. up 569%Y/Y in France and more than 32-fold from a year ago in Italy), this morning’s data from the SMMT confirmed a rebound in UK new car registrations last month, albeit with the level remaining well down on pre-Covid norms for the month. In particular, having plunged to just 4321 cars in April 2020, new car registrations reportedly rebounded to about 141k last month as English showrooms reopened from the twelfth of the month. While that represented an increase of more than 32 times from a year earlier, registrations were still down more than 12% from the same month in 2019 and also down about 13% from the average in the prior decade.

Euro area final services PMIs to point to resilience, PPI data to highlight pipeline price pressures, which have yet to be passed to consumers
Today’s data from the euro area are highly unlikely to be market-moving, bringing the final services PMIs for April along with PPI data for March. Nevertheless, like Monday’s manufacturing report, for which the headline index rose 0.4pt on the month to a series high of 62.9 (albeit down 0.4pt from the flash), the final services PMIs should be broadly encouraging and point to resilience in the sector. Indeed, the flash euro area services activity PMI rose 0.7pt to 50.3, the best (and first reading above 50) since August, to suggest significant resilience to the tightening of pandemic restrictions. And the flash euro area composite output PMI rose 0.5pt in April to 53.7, a nine-month high well within expansion territory for a second month. Meanwhile, fuelled by rising prices of intermediate goods as well as raw materials and energy – and exaggerated by base effects from last year’s weakness – producer price inflation is expected to jump a hefty 2.8ppts in March to 4.3%Y/Y, which would be the highest since autumn 2018. The PMIs would suggest such price pressures increased further last month. But with consumer prices of non-energy industrial goods up just 0.5%Y/Y in April, the flash April CPI data implied that, for now at least, the retailers are not passing on those increased costs to households.

ISM services survey and ADP report ahead in the US today; several Fed speeches also due, along with another busy day of corporate reporting
With one eye on Friday’s payrolls report, the focus in the US today will be on ISM services survey for April, together with the ADP estimate of growth in private payrolls during the same month. Daiwa America Chief Economist Mike Moran expects another robust ISM reading, but suggests that the index will decline 1.7pts to 62.0 from what was a survey record last month. And with Mike expecting total non-farm payrolls to have increased by 1mn in April, anything less than a very sturdy ADP report would be a big surprise. Aside from the economic data, another busy day of corporate reporting also looms and there are several Fed speaking engagements too, with Presidents Evans, Rosengren and Mester all speaking on the economic outlook.

Aussie dwelling approvals continue to lift sharply in March; non-residential building approvals leap to record high
The economic focus in Australia today was on the building approvals report for March. Following yesterday’s upbeat news on housing loan approvals, the ABS reported that the total number of dwelling approvals increased 17.4%M/M – far surpassing the consensus expectation – to be up more than 47%Y/Y. Indeed, the number of approvals in March was just short of the record high recorded in November 2017. This month virtually all of the increase came from apartment consents, which surged 63.6%M/M to be up more than 27%Y/Y (payback from an unusually slow start to the quarter). While private house approvals increased just 0.1%M/M, they were up almost 64%Y/Y and thus remain far above previous cyclical highs. In value terms, residential approvals increased 55.3%Y/Y. Meanwhile, driven by both the private and public sector, approvals for non-residential buildings leapt over 59%M/M in March to a record high that was also up 55.3%Y/Y, perhaps indicating that Australia’s recovery is broadening.

In other Aussie news, the services PMI was revised up 0.2pt to a final reading of 58.8 in April – up 3.3pts from March and so confirming the best month for the sector since the index was first compiled in 2016. So with the manufacturing PMI output index revised only slightly lower earlier in the week, the composite PMI – based on the output index from the two surveys – was revised up 0.1pts to a final reading of 58.9, up 3.4pts from March and also a survey high.

Kiwi jobless rate falls unexpectedly in Q1 but labour cost inflation still subdued for now
The focus in New Zealand today was on the release of the labour market data for Q1. Encouragingly, household employment grew 0.6%Q/Q for a second consecutive quarter, which was double the consensus expectation and especially favourable relative to the flat outcome projected by the RBNZ back in February. As a result, the unemployment rate fell an unexpected 0.2ppt to 4.7%, compared to the market’s expectation of a steady rate and the RBNZ’s forecast that the unemployment rate would rise to 5.0%. Whereas all of the growth last quarter was driven by full-time employment, this quarter it was a rebound in part-time employment that drove the overall result (full-time employment fell fractionally). Hours worked fell 2.3%Q/Q, but this data is very volatile with the previous quarter’s 4.1%Q/Q lift providing an inaccurate gauge of output. Meanwhile, the labour force participation rate inched up 0.2ppt to a high 70.4%, but remains slightly below where it stood a year earlier.

Importantly, at this early stage there is no sign of a lift in wage growth. The Labour Cost Index reported that both private and all-sector costs increased 0.4%Q/Q and 1.6%Y/Y, with the outcome for the private sector broadly in line with both market and RBNZ expectations. As this is a fixed weight index, with costs measured after subtracting increases tied to estimated gains in productivity, this indicates that growth in unit labour costs remained below the 2%Y/Y midpoint of the RBNZ’s CPI inflation target range. So while the RBNZ will welcome today’s news, like its counterpart across the Tasman we expect it to maintain a dovish policy outlook when it next reviews policy on 26 May.

Finally, today also saw the RBNZ release its semi-annual Financial Stability Report. Predictably the Bank described the financial system as “sound”, having so far come through the pandemic better than feared thanks to a much quicker than expected rebound in the economy. However, the Bank stated that some vulnerabilities remain, such as those associated with high asset prices – especially housing – and ongoing weakness in those sectors most heavily impacted by the pandemic. With regard to housing, the RBNZ noted that it will be watching how market conditions respond to the Government’s recent policy changes and, if required, was prepared to further tighten lending conditions for housing.

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