The Market Today
Trade Talk Back in Headlines; Jobs Data Ahead
by Craig Dismuke, Dudley Carter
Vining Sparks Economic Outlook Update – Thursday April 5, 10:00 a.m. CT: Vining Sparks will host its 2nd Quarter Economic Outlook Update during which we will discuss the significant increase in market volatility this year. We will discuss why the increased volatility is a symptom of a larger underlying challenge to economic stability.
THIS WEEK’S NEWS:
Packed Week to Shed Light on Broad Economic Picture Capped off with March’s Jobs Data: This week’s calendar is packed with important economic reports. At 9:00 a.m. CT this morning, the ISM Manufacturing Index is expected to show a slight pullback in the index, albeit remaining at a very strong level. Additionally, the February Construction Spending report is expected to show a strong month for construction activity. Tuesday will bring the March auto sales reports which is likely to show a continuation of the 14-month trend of declining sales. The trend was interrupted for five months by the hurricanes last fall, but the decline appears to be back on track. Wednesday will bring the ADP Employment report, expected to portend another month of strong job growth, and the March ISM Non-Manufacturing Index. Like its counterpart survey, the ISM report is expected to pullback fractionally but remain very strong. The final trade balance report for February will be released on Thursday and then the big data will hit on Friday, March’s jobs reports. Nonfarm payrolls are expected to grow 189k, keeping the above-sustainable pace intact, and the unemployment rate is projected to fall from 4.1% to 4.0%. Perhaps most importantly, the average hourly earnings data is expected to show a 0.2% MoM increase in earnings which would bring the YoY rate up to a cycle-best 2.8%.
Overnight – Trade Concerns Come Back to Life as China Implements Tariffs on U.S. Goods: U.S. futures are weaker following lower closes across Asia after major indexes there gave up early gains. Helping to keep trading volumes below normal, markets across Europe remain closed for the Easter holiday. Global equities were boosted last Monday by positive weekend developments around trade flows between the U.S. and China but the reverse scenario appears to be playing out to start this week. China issued a statement Sunday making official tariffs on 128 different types of American-made imports in response to the U.S. moving against imported steel and aluminum. Adding to the subdued start, a popular quarterly business survey in Japan was weaker than expected and a round of regional PMIs softened in March. That included a private manufacturing PMI for China which slipped to a four-month low. U.S. Treasury yields have ticked up ahead of this morning’s U.S. economic calendar, with the long end leading the rise. The 2-year yield is 1.8 bps higher while the 10-year yield has added 2.9 bps
ICYMI – March 30, 2018 Weekly Market Recap: The yield curve reached new cycle lows last week when it comes to the steepness between various longer maturities compared with the 2-year Treasury yield. The spread between the 2-year and 5-year yield fell to 29 bps. The extra yield for holding a 10-year note dropped to just under 48 bps. And the yield pick-up for opting for the Long Bond dropped to just over 70 bps. The shape changes occurred amidst the common trading theme of short yields rising but longer yields edging lower. Yields rose last Monday after trade talks sounded less dire but fell in response to another bout of equity weakness on Tuesday. A lack of yield recovery later in the week left longer yields below the bottom of their recent trading ranges. The 10-year yield crossed through 2.80% and ended the holiday-shortened week at 2.74%, its lowest yield since February 5. While Treasury investors were distracted by equity swings, 4Q17 growth was revised up, consumer confidence measures were mixed, initial jobless claims hit a new decades’ low, personal spending was modest, and PCE inflation matched estimates. Click here to view the full recap.