The Market Today
China PMI Cools, EuroZone GDP Beats, Busy U.S. Calendar Continues
by Craig Dismuke, Dudley Carter
Important Gauge of Wage Growth, ECI, Slips in 1Q: The only early release today was the 1Q Employment Cost Index which showed employee costs up 0.74% bringing the year-over-year rate down from 2.9% to 2.8%. Wages and salaries rose 0.74% while benefit growth rose a more modest 0.65%. Benefit growth was outpacing wage growth during the first several years of the economic cycle but have been fractionally softer going back to 2014. As one of the most relied upon measures of wage growth, this morning’s report takes a little steam from the recently stronger wage growth data. Regardless, wage growth still shows better traction, broadly, than it has at any point in this cycle.
Home Prices, Pending Sales, and Consumer Confidence: At 8:00 a.m. CT, the S&P CoreLogic Home Price Index is expected to show home price gains slow to sub-4% year-over-year which would be the first time they have done so since 2012. At 9:00 a.m., the March Pending Home Sales report is expected to show a strong month for existing homes going under contract for sales. Also at 9:00 a.m., April’s consumer confidence report from the Conference Board is expected to rebound from a disappointing March report.
Infrastructure Talks: Also on the radar today is a meeting between Democrats Schumer and Pelosi and the White House on a possible infrastructure deal. And spending deal could help alleviate the risk of a fiscal cliff in 2020. According to Politico, “Democratic leaders Chuck Schumer and Nancy Pelosi outlined three areas where they want to work with Trump on infrastructure in a letter before their meeting with him today: new revenue, inclusion of water and energy projects, and reliance on products and companies based in the U.S. … Their demands could blow up the talks before they really begin, our Heather Caygle reports: ‘A source close to Schumer went even further than the letter, saying unless Trump considers rolling back some of the 2017 Republican tax cuts to pay for new investments, the top Senate Democrat won’t even consider a proposal from the president to raise the gas tax.’ Senate Appropriations Chairman Richard Shelby (R-Ala.) told reporters Monday that Congress needed to develop ‘a huge infrastructure bill,’ which would be expensive but ‘a good investment for America.’”
Overnight – Outlook Remains Uncertain after Update from China, EU: Global markets traded in different directions overnight as the global corporate earnings calendar rolled on and investors received an economic update from the world’s second and third largest economies. A slowdown in China and the EU has been the center of concerns about global growth and a key factor in the Fed’s decision to be patient with policy in 2019. Following a string of upbeat reports in recent weeks, China’s manufacturing PMIs cooled unexpectedly in April and the government’s services survey also reported an unexpected slowdown. Chinese stocks, however, rose 0.3% and were one of the few gainers across Asia. The update from Europe was somewhat brighter with the Eurostat reporting stronger-than-expected 0.4% growth for the Eurozone in the first quarter and a 0.1% decline in unemployment to 7.7%, a new low back to 2008. Despite the better-than-expected quarter, the 1.2% year-over-year growth matched a revised higher result for the fourth quarter and was the slowest since 2013. The bigger market reaction, however, came from firmer-than-anticipated inflation in Germany showing an acceleration from 1.4% to 2.1%, a five-month high. Germany’s DAX was positive while most other European indices edged lower. Treasury yields opened lower after the China data missed but jumped with European yields in response to the firmer economic data. Just after 7:30 a.m. CT, the German 10-year bund was up 4.0 bps to 0.4% while the 10-year Treasury had added 1.8 bps to 2.54%.