(Friday Market Open) A tepid jobs report competed for attention early Friday with U.S. missile strikes on Syria and the U.S./China summit meeting. Futures prices pointed toward a lower open as investors considered possible economic impacts from this potpourri of events.
Though the unemployment rate fell to 4.5% in March, the lowest it’s been since before the Great Recession, jobs growth of 98,000 reported by the U.S. Department of Labor was nowhere near expected levels and well below prior months. What happened?
For one thing, those big construction job gains seen in February ground to almost a halt, rising just 6,000 in March after a 59,000 rise a month earlier. And retail trade lost 30,000 jobs in March, the Department of Labor said. Employment in general merchandise stores fell 35,000, perhaps a sign of weakness in the retail industry.
On the positive side, employment in business and professional services rose 56,000, near the average monthly gain for that category over the last 12 months. Mining saw a little growth.
In all, however, it wasn’t such a positive report, and the question is whether we’ll see revisions in coming months. That’s worth asking because private sector job growth rose by 263,000 in March, according to ADP’s report earlier this week. The two reports don’t have to match, but it is odd to see such a huge gap.
Despite its importance, the jobs report might take a backseat Friday to international relations. The U.S. hit a Syrian air base with Tomahawk missiles late Thursday around the same time that President Trump sat down with Chinese President Xi. Suddenly, the meeting between the two leaders to discuss trade and North Korea, among other subjects, got pushed off the front page, but it’s still part of the focus on Wall Street. There was a report Friday in The New York Times that Trump plans to sign an executive order targeting countries that “dump” steel in the U.S. We’ll see if any new developments come from Mar-a-Lago later today.
So called “safe haven” investments such as gold, oil, the Japanese yen and U.S. Treasury bonds all climbed early Friday after the missile strikes. U.S. 10-year Treasury yields, which move in the opposite direction of bonds, fell to near the 2.3% level, which marks the bottom of the recent trading range. Gold climbed above $1,260 an ounce, near its intraday high from late February.
In stocks, it’s worth watching to see if defensive sectors such as health care, consumer staples and utilities get a boost from the international tension. Volatility is on the rise, with VIX climbing to near 13 early Friday, not far from recent highs for the volatility index.
Amid the foreign tensions, oil prices have been scooting up (see below). It’s possible that oil’s recent strength may be helping underpin the stock market slightly.
Hawkish Fed But Yields Near Recent Lows: With the Fed sounding a bit more hawkish than many analysts had expected in its March meeting minutes, it may seem surprising that 10-year yields fell earlier this week to near the low end of the recent range. And that was before the strikes on Syria sent investors scurrying into the perceived safety of bonds. Even as the U.S. faces possible rate hikes and a move by the Fed to address its balance sheet, European monetary policy remains loose, which could help explain some of the pressure on U.S. bond yields that existed even before the U.S. attacked Syria. Foreign investors might be buying U.S. bonds for the better yields they offer, though they’re low from a historic perspective. Support for 10-year U.S. yields is around the low of the recent cycle at 2.3%. Resistance remains near 2.6%, a level the market has had a very hard time punching through.
Better Times for Crude: After sinking to multi-month lows in late March down around $47 a barrel, crude oil revived a bit this week, partly on hopes that OPEC might extend its production cuts through the end of the year. The original end date was supposed to be June. Another factor could be seasonal. Spring is traditionally a time when U.S. gasoline demand starts to jump as “driving season” looms and people plan their summer trips. Working against any major kind of demand rally, however, is that U.S. crude stocks remain at all-time highs. Supplies reached 535 million barrels at the end of March, up about 37 million from a year earlier, and the energy sector remains down more than 7% year to date. Here’s something to remember: When oil prices go up, it sends a signal to U.S. producers to pump more out of the ground, somewhat muting OPEC’s impact.
Major Move: Wednesday’s huge reversal continues to reverberate and remind investors how fast markets can move at times. If it seems like a long time since we’ve seen something like that, it’s because it has. Wednesday was the first day since February 2016 in which the S&P 500 (SPX) climbed 0.75% or more intraday but ended up closing the session lower. Investors have gotten used to low volatility and small daily moves, but it seems like things might be getting choppier as so much news keeps coming at investors.
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