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Jobs Report to Highlight Data-Packed Week After Hawkish Fed Talk Chills Rally

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March 28, 2016

(Monday Pre-Market) Will this coming data-packed week put some punch back into the stock market party that ended abruptly last week?

It may depend on the numbers coming out for personal income and consumer confidence, not to mention more jobs numbers, payrolls, and construction sales. It also could depend on whether investors hear more hawkish language from Fed officials, a factor that helped contribute to last week’s losses.

There’s a lot of data coming out, but the highlight is likely to be Friday’s non-farm payrolls report, which could give investors a sense of whether last month’s strong numbers continued in March. The February report showed job gains of 242,000, above expectations, with growing labor force participation. Prior to the jobs report, key data include Monday’s personal income and Tuesday’s consumer confidence.

The short week that was, marked by the strong dollar, weakening oil prices, and hawkish sentiments from Federal Reserve members, halted the five-week rally. Last week’s reports of rising U.S. oil stockpiles drove down the price of a barrel of crude into the $38 range and helped ignite the dollar, potentially rekindling fears of a global crude glut. Besides oil, other commodities slumped in mid- and high-single digits, while there was relative strength in safe havens like consumer staples and utilities. Gold also took a hit. As of midday Thursday, gold futures were tracking lower for the third straight week.

And several Fed officials last week said an April interest rate hike may be warranted. Fed funds futures showed rising chances of rate hikes in April, June, and July.

Trading volume likely could pick up steam this week after the shortened holiday period last week, when the markets were closed Friday for the Good Friday holiday. Some 6.8 billion shares changed hands in the markets last week compared with an average of about 8.1 billion.

We’ve got a couple weeks until the kick-off of first-quarter earnings, but Thomson Reuters data is predicting a 6.9% drop-off in earnings from the S&P 500 companies. At FactSet, the estimate is a deeper 8.4% pullback, and if it happens, it will mark the first time the index has seen four straight quarters of year-over-year declines since the depths of the recession starting in Q4 2008, according to FactSet.

S&P 500

FIGURE 1: FIVE-WEEK RALLY HALTS.

The S&P 500 (SPX), plotted here through midday Thursday on the TD Ameritrade thinkorswim® platform, was on pace for a down week after five weeks of rallying. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

Mixed Economic Reports: There was a hint of bullish news Thursday as weekly numbers of Americans applying for unemployment stood relatively unchanged. But that was bashed by the 2.8% drop in durable goods orders. Those falling numbers reflect what’s going on in the manufacturing sector, a key measure of economic growth. Every major industrial sector, except for autos, which has weathered extremely well in recent months, declined.

The Federal Reserve’s Inconsistency: The “mini revolt” at the Federal Reserve that we talked about last week continues. On Thursday, St. Louis Fed President James Bullard joined the chorus of hawks who note that rate cuts could be in the works as soon as the April 26-27 meeting. Speaking to a group of business economists, Bullard acknowledged an “inconsistent” streak in Fed decisions on rate hikes, referring to the Fed’s December projection of four 2016 rate hikes that was cut back to two in March. The recent hawkish talk from Fed officials hasn’t done much to convince the markets of a likelihood of an April hike, according to the CME’s FedWatch tool. As of midday Thursday, it stood at a 14% probability in April and a 43% probability in June.

Chinese Monetary Policy Shift: Premier Li Keqiang said last week that Beijing is taking steps to “promote structural reform” by cutting the tax burden on Chinese companies. It is a bid to shift toward consumption and services from manufacturing, according to the Wall Street Journal. The tax cuts will tally some 500 billion yuan, or $76.8 billion this year. Industry officials told the WSJ that the cuts would only take out about 10% of overcapacity in sectors where the excess is already more than 30%. 

Good Trading,
JJ
@TDAJJKinahan

Economic Report Calendar

FIGURE 2: THIS WEEK'S ECONOMIC REPORT CALENDAR.

Source: Briefing.com

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