Daily Market Reports | Apr 08 2013
By Greg Peel
Wall Street was shocked into reality on Friday night when the March non-farm payrolls number came in at 88,000 new jobs compared to expectations of some 190,000. It was the lowest addition in nine months and looked rather grim against February’s revised 268,000. While the unemployment rate fell to 7.6% from 7.7% in February, it was all about the participation rate which fell to 63.3% — the lowest level since 1979. Half a million Americans gave up looking for a job in March.
It would seem the fiscal cliff is finally having an impact. We spent all of late 2012 worrying about it, until the cliff became a fizzer. Then there was the sequester to be concerned about until it, too, seemed like much ado. Yet all the US politicians have done is delayed the impact of the budget cuts they can’t agree on, and with government job losses featuring heavily in March’s numbers it would seem that Wall Street was right to be distraught over the cliff a few months ago, just out in the timing. Next month the debt ceiling will need to be agreed upon.
The jobs number was released ahead of the bell on Friday and from the open the Dow fell 172 points. That’s the obvious initial reaction. The obvious secondary reaction, nevertheless, is to assume all talk about a Fed exit which has been brewing these past few weeks is very premature. On the strength of Friday’s data, and some weaker data points over the last week or so, the Fed is going nowhere.
Hence Friday’s session saw a return to good old fashioned “don’t fight the Fed” trading. The US ten-year bond yield fell 7 basis points to 1.69%, its lowest level for the year. Having spent most of last week falling, gold shot up US$28.70 to US$1582.30/oz. And stocks spent all of the session grafting back, to turn a 172 point Dow loss into only a 40 point Dow loss, or 0.3%. The S&P closed down 0.4% to 1553 and the Nasdaq lost 0.7%.
Weak US data is not good news for Europe or Japan who would like to see a strong dollar. Extended Fed QE counteracts attempts by both to either talk down or actively devalue their currencies. The US dollar index fell 0.2% on Friday to 82.57, having risen strongly late last week on the big fall in the yen. The Aussie is trading down half a cent to US$1.0387.
Base metals were mostly weaker on Friday, but not remarkably so with China on a holiday break. Oil, on the other hand, was hard hit yet again. Brent fell US$2.22 to US$104.12/bbl and West Texas was down US76c to US$92.50/bbl.
Spot iron ore rose US30c to US$136.90/t.
After a bearish week last week on the local bourse, the SPI Overnight fell 5 points.
The March quarter US earnings season begins tonight with the release of the Alcoa (Dow) result and runs for over a month. Later in the week JP Morgan (Dow) will kick off the big bank numbers. For the next few weeks the focus on Wall Street will turn to the micro to take attention away from the macro, and the good news is that expectations are more pessimistic than optimistic going into the season. The same was true last quarter, in which earnings beats well outnumbered misses. If the same is true again, and the Fed is firmly entrenched, it’s hard to see just how Wall Street can put together any decent market correction.
On the economic front, the US will see wholesale trade on Tuesday and the minutes of the Fed meeting on Wednesday, which are now likely redundant. Thursday brings chain store sales and Friday retail sales along with business inventories, the PPI and consumer sentiment.
China will release its all important inflation data for March on Tuesday. Another jump in CPI would restrict the capacity of the new regime in Beijing to continue with fiscal stimulus. China’s March trade balance is released on Wednesday.
It’s a busy week for bank economists in Australia this week, with ANZ job ads due today, the NAB business confidence survey out on Tuesday and the Westpac consumer confidence survey on Wednesday. Today also sees the March construction PMI and on Thursday we’ll see our own jobs numbers. Will there be a correction for February’s dubious result?
Rudi will appear on Sky Business today at 11.15am, Tuesday at 5.30pm, Thursday at noon and again at 7pm for the Switzer Report, and on Friday at 7pm.
For further global economic release dates and local company events please refer to the FNArena Calendar.
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