Jobs For All

Jobs for all.  On Friday, stocks sold off on surprising employment data and traders wondered how imminent a China trade deal actually was.  The drop in stocks capped off a week of selling, the worst in 2019, as all indexes closed in the red.

WHAT YOU NEED TO KNOW:

1)  Rates are staying put for now. Fed Chairman Jerome Powell said in a 60 Minutes interview that interest rates were in an "appropriate place".  He also implied that the Fed would be willing to let inflation slightly overshoot their target of 2%.  Stock futures in Asia appreciated the chairman’s comments even though the Fed policy is baked into the markets already.  Bond traders however will need to think about the inflation target overshoot which could spell some weakness for fixed income.

2)  Employment hit a soft spot in February according to numbers released on Friday.  The big surprise was the Non-Farm Payrolls number which showed that 20k new jobs were created in February, well below the expected 180k.  The number had many analysts scratching their heads and ultimately the crowd chose to view it as an anomaly.  Meanwhile, the rate of unemployment ticked down to 3.8% from 4% and wages rose by +0.4% month over month.  The numbers show that the labor market is tightening.

3)  2020 Presidential candidate Senator Elizabeth Warren wants to break up big tech companies. Whether or not she succeeds in her presidential aspirations, she remains a Senator at the center of a growing movement which could spell confusion for tech investors going forward.  So far… nothing but a debate as Facebook closed up +0.28% while Google and Amazon were off slightly on Friday.

4)  A new budget battle may be brewing.  WHILE YOU SLEPT news that the President will be submitting a new budget surfaced.  The new budget is expected to include a larger allocation to a border wall and the news prompted a quick response from Democratic congressional leaders.

Equities closed out a tough week of trading on Friday as traders responded to a surprising, but mixed employment situation release.  The initial response was a sharp selloff in equities which ultimately gave way to late session buying erasing the sharp losses from the morning session.  The damage however was already done as stocks sold off five days in a row leaving the S&P500, the Dow, and the NASDAQ all below their 200 day simple moving averages.  This technical breakdown could be a bad sign for stocks as they typically continue to fall when the indices breech the key support level and trend indicator (see charts 4, 7, and 8 in my attached daily chartbook).  Bonds rallied last week leaving the ten year treasury yielding 2.62%, down around 10 basis points for the week.  The 2/10 yield curve closed out the week around +16, flatter by about 2 basis points.  Finally spreads on corporate bonds widened modestly indicating a slight risk off sentiment.

WHAT TO LOOK FOR TODAY:

This morning we will get Retail Sales which is expected to come in flat month over month compared to last month’s drop of -1.2%.  Ex Autos and Gas, the figure is expected to show a +0.6% growth versus last month’s -1.4% pull back.  The Treasury will auction $38 billion 3 year notes this afternoon and the reception of the auction will be interesting considering the inverted shaped of the yield curve in that maturity area.  Boeing will be a hot topic today after a crash by one of its airliners in Ethiopia yesterday which led to a grounding of its entire fleet of 737 Max aircraft.   Boeing is trading off by around -8.8% in the pre market.  Today’s hot topics will also include President Trump’s budget submission, North Korea’s new missile brinksmanship, and more speculation about a Chinese trade deal.

WHAT TO LOOK FOR IN THE WEEK AHEAD:

The week ahead will feature some important inflation figures on Tuesday and Wednesday with the CPI and PPI releases respectively.  The Consumer Price Index ex Food and Energy is expected to come in at 2.2% and the Producer Price Index is expected to come in at 2.6%.  These numbers will be carefully watched despite all of the ongoing dovish signaling from the Fed.  Later in the week we will get New Home Sales, Industrial Production, and the University of Michigan Sentiment indicator.  We will also get the JOLTS release which details job openings and while it is usually not a market mover it will be closely watched after last Fridays surprising employment number.  Corporate earning have all but wound down but the week ahead will still feature some major releases from the likes of Adobe, Broadcom, and Dollar General, to name but a few.  Please refer to the attached weekly earnings and economic release calendars for details.

daily chartbook 2019-03-11

earnings releases 3_11

econ numbers 3_11