TD Securities strategists anticipate an improvement in the US ISM Services Index for May, projecting a rise to 54.7 from 53.6 previously, which is above the consensus estimate of 53.8. This increase is expected to be driven by new orders and supplier deliveries, with the latter reflecting ongoing supply chain disruptions attributed to the Iran conflict [1]. The prices paid measure within the ISM Services Index will be closely watched, as it indicates the extent of inflationary pressures stemming from elevated energy prices [1].
Labor market indicators are also highlighted, with stronger JOLTS job openings reported for April, though TD Securities suggests this increase may be overdone and expects mean-reversion in May. The strategists note that job openings data is volatile and place greater emphasis on labor ratios, observing that a significant portion of the April increase was concentrated in professional and business services [1]. Overall, the labor market is showing signs of stabilization and some improvement, with attention set to shift to the Non-Farm Payrolls (NFP) report on Friday [1].
Despite the focus on US economic data, TD Securities stresses that developments in the Middle East, particularly any progress toward a ceasefire, could overshadow domestic data for market participants. The strategists point out that headlines from the region may have a greater impact on market sentiment than the scheduled US releases [1].
Key events for the week include the release of ISM services, ADP employment, S&P services PMIs, speeches from Fed officials Barr and Logan, and the Fed's Beige Book, all scheduled for Wednesday morning and afternoon [1].
CONCLUSION
TD Securities expects US services data to show improvement, supported by new orders and supply chain challenges linked to the Iran conflict. However, market attention may be diverted by Middle East developments, with ceasefire progress potentially outweighing the impact of US economic releases. Labor market indicators suggest stabilization, but volatility in job openings remains a concern.