Stocks Reverse Course Late in the Week; Dow Hits All-time Highs
The capital markets were relatively subdued this past week despite the large number of data points market participants needed to absorb. Both the ECB and the RBA met and kept interest rates unchanged, while the UK, EU, China and US reported national purchasing manager's reports. The overall tone of the economic data was either weaker than expected or in line, while the week was capped off with the US employment number. For the week the S&P 500 index closed higher by 0.4%, while the Nasdaq closed down 0.67%.
One of the best reports of the week was the strong results shown for car sales. The US reported a sharp increase in auto sales on Tuesday. The annual unit pace climbed to 16.33 million from 15.27 million in February. The weather in fact seemed to depress auto sales in February as the March rebound was substantial. This in turn will created strong momentum for retail sales, which should spill over into GDP. With US auto producers accounting for nearly 80% of the increase in auto sales, there are strong signs that growth will be better than expected.
The Reserve Bank of Australia left interest rates unchanged with the cash rate at a record low 2.5%. The accompanying statement from the reserve board governors continued to indicate a period of stable rates. There was very little discussion of the currency with the exception of stating that the central bank sees the currency as relatively high by historical standards and that its recent strength offsets some of the improvements that had been seen in the economy.
Purchasing manager's data from China, painted a mixed picture of the country's manufacturing sector. The headline index increased up to 50.3 in March from 50.2 in February. The HSBC index, which gives more weight to smaller private companies, slipped to 48 from 48.5.
Japan's Tankan survey generally showed improvement, but slightly less than the consensus expected. Sentiment among large manufacturers improved to 17 from 16. This is the highest since 2007, but fell shy of the 19 the consensus forecast. Capital expenditures among the large companies increased 0.1% in the fiscal year.
Manufacturing continued to show solid results in the US. According to the ISM the headline survey increased to 53.7%, up 0.5 percentage point from February's reading of 53.2%. This compared to expectation of a headline number of 54%. The New Orders Index registered 55.1% an increase of 0.6 percentage point from February's reading of 54.5% and compares to an unchanged expectation. Employment grew for the ninth consecutive month, but at a lower rate by 1.2 percentage points, registering 51.1% compared to February's reading of 52%.
Services also were firm. The Institute for Supply Management said its services sector index rose to 53.1 in March, slightly under expectations for a read of 53.5 but comfortably ahead of the February read of 51.6. The employment index rose to 53.6 from 47.5 in February, which had been the lowest read for the sub-index since March 2010. The gauge of business activity fell for a second straight month, slipping to 53.4 from 54.6 in February. Analysts were looking for a read of 55.2. The new orders index rose to 53.4 from 51.3, its third straight monthly increase.
On the employment front, Private sector employment increased by 191,000 jobs from February to March according to the March ADP National Employment Report. This compared to the 195,000 expected by economists. The silver lining was the revision to the February data which saw an increase of approximately 40,000 jobs to 178,000 from 139,000.
On Friday the Department of Labor released its monthly payroll report. Non-farm payrolls increased by 192k jobs, which was in line with economists' expectations. In addition to February's revision from 175K in job gains to 197K, January is revised higher by 15K jobs to 144K. Average hourly earnings fell by $0.01 to $24.30. The average workweek increased 0.2 hours to 34.5 hours, offsetting the net decline over the previous three months. The headline unemployment rate was unchanged at 6.7%, as people flocked back into the workforce to the tune of about 500K workers. The labor force participation rate increased to 63.2% from 63% previously.