Relief

Relief.  Stocks rallied on Friday in response to a strong monthly jobs number putting recession fears at ease… for now.  Investors were more relieved than pleased to hear that the monthly job additions seemed to have bounced back after last month’s weak showing.

WHAT YOU NEED TO KNOW:

1)  The US Economy is not in a recession.  Though there are many signs that growth is slowing, the labor market is not one of them.  On Friday, the Bureau of Labor Statistics (BLS) announced that the US economy generated +196k new non-farm jobs in March with an unemployment rate of 3.8%. February’s revised +33k new jobs struck some fear in the hearts of bulls last month, which ultimately led to the beginning of the “cut rates now” movement.  More on that to come.

2)  The President believes that the Fed should cut rates now!  He has proposed nominating two Fed governors who are not only staunch political supporters of him but also critical of the Fed’s recent tightening cycle.  Additionally, the President said on Friday that the Fed should not only cut rates but should also begin quantitative easing.  His assertion caused a bit of a stir in the bond markets leading to the yield curve flattening a bit.  Jawboning and political appointing is not uncommon for the executive branch from both parties, though they usually do not end up in policy changes by the independent Fed.

3)  A trade deal between the US and China is close… depending on who you ask and how you define close.  Larry Kudlow, a member of the plunge protection team and supporter of the “cut rates now” movement, took to the airways on this weekend’s talk show circuit to talk about his guardedly optimistic view that an agreement will be reached.  This, after conflicting reports from insiders and an opinion from Xinhua (the officially run Chinese news agency) that IP theft and mandatory technology transfer remain the sticking points for a deal.  So while some type of deal may get struck, it may only be a temporary fix to the problem, not even addressing the causes of the trade war.

THE MARKETS:

Equity markets traded up on Friday as investors breathed a big sigh of relief after hearing that the US labor market is not broken.  in fact the monthly new jobs number has been positive now for 102 consecutive months.  Unemployment remains at lows not seen since December of 2000.  There is a downside to all of this positive news.  First, the unemployment rate always hits a low point before inflation kicks in usually setting off a chain of events leading to a recession, but that doesn’t mean it will happen soon.  Second, investors who were hoping for the Fed to lower rates this year may be disappointed as the strong number does not support a rate cut.  Equity markets were content to rally on Friday with S&P500 rising by +0.46%, the Dow Jones Industrial Average climbing by +0.15%, the Russell 2000 trading up by +0.96% (now above its 200 day moving average), and the NASDAQ 100 gaining +0.51%.  For the record, the S&P500 is just 1.3% below last year’s all time high.  Bonds also rallied on Friday, but in response to Trump’s call for easing.  Ten year treasury yields fell by 2 basis points to 2.49% and the 3 month / 10 year yield curve remained positive at +6 basis points, slightly flatter.  Crude oil continues to climb as a result of supply cuts and fears of trouble in Libya, helping the energy sector.

WHAT TO LOOK FOR TODAY:

This morning the US Census Bureau will release its Factory Orders number and it is expected to show a decline of -0.5% compared to last period’s +0.1% growth.  Also up this morning is February’s final read on Durable Goods Orders and it is expected to come in line with prior estimates at -1.6%. The Treasury will auction $42 billion of the now-famous 3 month bills and investor interest will be watched carefully as those rates are closely tied to Fed policy.

WHAT TO LOOK FOR IN THE WEEK AHEAD:

This week is packed with economic releases which will feature the Bureau of Labor Statistics' read on both consumer and producer inflation.  Excluding food and energy, Consumer Prices are expected to have grown at a year over year pace of +2.1% and Producer Prices are expected to have grown at +2.4%.  We will also get JOLTS (job openings) and a sentiment number from University of Michigan. The big release of the week will be the FOMC minutes release on Wednesday which will be carefully scrutinized by all.   Believe it or not earnings season will officially begin late this week with the first of the big banks announcing their first quarter results.  Please refer to the attached economic and earnings calendars for details.  Today will be a reflection day which will include discussion of border security and administration jawboning, both of which are political in nature.

daily chartbook 2019-04-08

earnings releases 4_08

econ numbers 4_08