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Hang on Tight, Stock Volatility Finds Spring Awakening

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April 1, 2015

Volatility woke up early Wednesday morning as Asia’s stock market drop and a fresh flurry of “safe haven” yen buying after a weaker Japanese business sentiment report kept a downbeat tone alive on Wall Street, too. Electronic equity futures were sharply lower (in fact, screens showed about a 1% drop in some 20 quick minutes for the NASDAQ Composite and S&P 500 futures at one point) before a mild rebound. That bounce, which accompanied improved European economic data, still left stock indicators flashing red just not as severe as in early action. Needless to say given the start to our week, volatility may still rule the mood, meaning April may charge in as much a lion as March did.

FIGURE 1: JUST BY A HAIR. The S&P 500 (SPX) finished down 18.35 points, or 0.9%, at 2,067.89 Tuesday, though it still managed a quarterly gain of 0.4% for its ninth-straight winning quarter. Data source: Standard & Poor’s. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Europe’s Factories Start to Hum? Manufacturing activity in the euro-zone grew at the fastest pace in 10 months. Data firm Markit, which surveys more than 3,000 manufacturers, calculated its purchasing managers index at 52.2 in March from 51.0 in February. A reading below 50.0 indicates activity is declining, while a reading above that level reflects expansion. But MarketWatch and others urged a deeper read. The report shows a weakening currency has raised costs for manufacturers by lifting import prices, but businesses nevertheless continued to cut the prices they charged, an indication that the European Central Bank will be challenged to raise the currency area's inflation rate back to its target of just under 2.0%.

Slower Pace in Private Sector. Private-sector employment gains continued in March but at a slower pace than in the prior month. Employers added 189,000 jobs last month, Automatic Data Processing Inc. reported Wednesday. ADP revised February's gain slightly to 214,000 from a prior estimate of 212,000. This is the lowest increase in the monthly ADP since January 2014. Economists use ADP's data to get a feeling for the Labor Department's employment report, which will be released Friday and covers government jobs in addition to the private sector. Economists polled by MarketWatch expect the government's report to show that nonfarm payroll rose by a 252,000 jobs last month, down from a gain of 295,000 in February. Economists note the ADP survey has sharply underperformed payroll data over the past several months. The report, a prelude to Friday’s highly anticipated March nonfarm payrolls report, pushed up short-term demand in the Treasury market, driving down benchmark market interest rates. Still on tap: a U.S. factory-sector reading and construction spending.

Oil Prices Drop for Three Straight Quarters. Oil futures were tipping higher early Wednesday as supply and demand headlines hang over this market. Market participants keep a close watch on U.S.-Iran nuclear talks and prospects for growing U.S. oil supplies.  U.S.-traded crude futures were near $47.89 a barrel. May Brent crude on London’s ICE Futures exchange rose 1% to $55.66 a barrel. Oil prices have fallen for three consecutive quarters. Nymex crude lost 10.6% in the January-March quarter, and has fallen by 55% over the last three quarters, while Brent crude lost 3.9% in the last quarter and has fallen by 51% over the last three quarters.

Good trading,
JJ
@TDAJJKinahan

JJ Kinahan

JJ began his career in 1985 as a Chicago Board Options Exchange...

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