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The U.S. Week Ahead (April 1-5), Jobs Report Highlights Data Deluge

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Includes: PLNT, WMT, XLY, XRT
by: Interactive Brokers
Summary

Market participants will generally be busy sifting through a heavy slate of economic data in the week ahead, highlighted by retail sales, manufacturing and the all-critical non-farm payrolls report.

Upcoming economic activity will likely be eyed with increasing scrutiny, as the Fed’s stance on monetary policy could shift given the amount of strength, or weakness, of incoming data.

The month- and quarter-end has also marked the unraveling of the recent yield curve inversion, which had been stirring fears about an ensuing recession.

Meanwhile, on the corporate front, investors may receive further insights into some retailers’ strategies from Cowen's 5th Annual Future of the Consumer Conference: Customer Centricity for the Next Generation.

Market participants will generally be busy sifting through a heavy slate of economic data in the week ahead, highlighted by updates on retail sales, manufacturing and the all-critical non-farm payrolls report.

While global headwinds, including Brexit uncertainties, U.S.-China trade relations and slowing growth have shaken some investors’ confidence in the financial markets, the Federal Reserve’s recent pull-back from tightening monetary policy appears to have boosted the domestic risk-taking tone.

The S&P 500, for example, has gained more than 12.3% year-to-date in 2019, while ultra-low borrowing costs have led investment-grade corporate bond issuers to sell nearly US$324bn worth of debt – about on-par with the US$329bn recorded in the first three months of 2018, according to SIFMA researchers and data sourced by Thomson Reuters.

The month- and quarter-end has also marked the unraveling of the recent yield curve inversion, which had been stirring fears about an ensuing recession.

While the yield on the 3-month U.S. Treasury bill had recently risen above the 10-year note yield, the levels had corrected in intraday trading Friday, with the 3-month bill and 10-year note last bid at around 2.412% and 2.425%, respectively.

Demand among bond investors also continues to spur issuance levels higher, evidenced by a flood of recent flows into corporate funds.

For the week ended March 27, Thomson Reuters/Lipper U.S. Fund Flows reported a net inflow of roughly US$2.75bn into investment-grade corporate bond funds, while high yield funds posted net inflows of nearly US$600m. These figures followed a whopping total of roughly US$14.3bn of inflows into high grade corporate funds over the past four weeks.

Against this backdrop, economic activity will likely be eyed with increasing scrutiny, as the Fed’s stance on monetary policy could shift given the amount of strength, or weakness, of incoming data.

The week gets underway Monday with a slew of fresh figures, as well as U.S. Treasury auctions, including:

Monday, April 1

  • Retail Sales (Feb)
  • Markit Manufacturing Purchasing Managers Index (PMI) – (Mar)
  • Institute for Supply Management (ISM) Manufacturing PMI (Mar)
  • 13-Week U.S. Treasury Bill Auction
  • 26-Week U.S. Treasury Bill Auction

Investors will be on the lookout for the U.S. Census Bureau’s advance estimates of U.S. retail and food services sales for February, after the prior month lifted from December’s dismal gauge.

Retail sales rose 0.2% in January to US$504.4bn from the previous month and increased 2.3% year-on-year.

Consumer-related stocks have also picked up steam since late December, with the Consumer Discretionary Select Sector SPDR Fund ETF (NYSEARCA: XLY) up a little more than 17% and the SPDR S&P Retail ETF (NYSEARCA: XRT) having risen roughly 24.1%.

The activity seems to contrast greatly to December’s gloomy picture, which had plunged to its lowest level since September 2009.

Ward McCarthy, chief financial economist at Jefferies, had characterized December’s data as “truly dreadful,” and if taken literally, it would suggest the consumer sector “collapsed” in the month. He continued that the release was “such an outlier and so incongruous with the general trend in consumer spending, holiday consumer sales reports and holiday seasons consumer credit data” that it raised red flags about reliability.

U.S. retail and food services sales for December fell 1.2% from the previous month to US$505.8bn, along with a downward revision for the October 2018 to November 2018 change to +0.1% from +0.2%.

Data collection and processing were delayed for this indicator’s release due to the lapse in federal funding from the partial government shutdown, which ran from December 22, 2018 through January 25, 2019.

Investors may receive further insights into some retailers’ strategies Tuesday, when Cowen will host its 5th Annual Future of the Consumer Conference: Customer Centricity for the Next Generation. The event’s list of attendees is set to include Walmart (NYSE: WMT) and Planet Fitness (NYSE: PLNT).

Elsewhere, ISM is slated to unveil its report on the health of the U.S. manufacturing sector Monday, after February’s report signaled continued strength in domestic demand, but a slowing in exports.

The PMI registered 54.2 in February, down from January’s reading of 56.6.

While most manufacturing industries reported growth in February, some market participants voiced continued concerns about the effects of trade-related tariffs in their sectors – notably within computer & electronic products, as well as food, beverage & tobacco and petroleum & coal.

Releases Monday will be followed by a deluge of data in the run-up to the U.S. Bureau of Labor Statistics’ jobs numbers ahead of the weekend. The diary of daily reports is set to include:

Tuesday, April 2

  • Durable Goods (Feb)
  • Redbook
  • Vehicle Sales
  • American Petroleum Institute (API) Crude Oil Stocks

Wednesday, April 3

  • ADP Employment (Mar)
  • Markit Services PMI (Mar)
  • ISM Non-manufacturing PMI (Mar)
  • Energy Information Administration (NYSEMKT:EIA) Crude Oil Stocks

Thursday, April 4

  • Challenger (Mar)
  • Initial Jobless Claims
  • 4-Week U.S. Treasury Bill Auction
  • 8-Week U.S. Treasury Bill Auction

Friday, April 5

  • BLS Employment Situation (Mar)
  • Baker Hughes Oil Rig Count

Investors will be eyeing the U.S. Bureau of Labor Statistics’ latest nonfarm payroll position figures after February’s report showed a paltry increase of only 20,000.

However, while the number of job additions were far below market expectations, AHE lifted by 0.4%, contributing to a 3.4% year-over-year wage figure – better-than-anticipated – and the unemployment rate fell to 3.8% from 4% in January.

Employment in professional and business services, health care, and wholesale trade continued to trend up, while construction employment decreased.

After revisions, job gains have averaged 186,000 per month over the last three months.

Briefing.com’s chief market analyst Patrick O’Hare noted the uptick in AHE is “good news, as it is a positive underpinning for consumer spending.”

Overall, O’Hare added that the “key takeaway from the report is that the weak payrolls figure will drive thoughts of either there being a shortage of skilled labor that could drive up wages or that it is a sign of a softening job market.”

Investors will most likely dissect the jobs report and other incoming data in the week ahead for further clues about the Federal Reserve’s monetary policy direction, as well as how domestic and global challenges such as trade negotiations, tariffs and slowing global growth may be affecting the U.S. economy and financial markets.

Note: This material was originally published on IBKR Traders' Insight on March 29, 2019.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. Business relationship disclosure: I am receiving compensation from my employer to produce this material.