After a three-day weekend, traders will return to the markets where there is little scheduled on the economic calendar.
However, earnings season will be in full force. Apple, Microsoft, McDonald’s, and Facebook are among the big names that will disclose how business performed in Q1 and how business could perform in the near future.
Everyone will be listening for the impact of weather, the effects of currency fluctuations, and the evolving demand dynamics of China.
Here’s your Monday Scouting Report:
The State Of The Chinese Economy: China is the world’s second largest economy and arguably the most important source of growth. However, policymakers are making efforts to rein in loose credit, crack down on corruption, and shift the economy from one driven by exports to one driven by consumption. This has caused GDP growth to slow to 7.4%.
The good news is China’s leaders are very much committed to making the slowdown an orderly process. Bank of America Merrill Lynch’s Ting Lu expects policymakers to soon announce a “mini-stimulus — some small-scale growth supportive measures focusing on fiscal spending in social housing, urban infrastructure and central & western region infrastructure.”
- Existing Home Sales (Tues): Economists estimate sales slipped 1.1% to in March to an annualized rate of 4.55 million. “This follows a fairly steady drop since July of last year,” said Bank of America Merrill Lynch economists. “Existing home sales track closed contracts, so March sales are reflective of market conditions in January and February, when we were coping with cold and snowy weather. Inventory is likely to increase since the data are released on a non-seasonally adjusted basis and supply typically picks up in advance of the spring selling season. This will therefore push months supply modestly higher.”
- Richmond Fed Manufacturing Index (Tues): Economists estimate this regional activity index climbed to 1 in April from -7 in March.
- Markit US Manufacturing PMI (Wed): Economists estimate this preliminary PMI climbed to 56.0 in April from 55.5 in March.
- New Home Sales (Wed): Economists estimate sales climbed 2.3% in March to an annualized rate of 450,000. “Home sales have drifted lower from December, owing in part to the harsh winter weather,” said BAML economists. “Mortgage purchase applications increased 4.7% in March, suggesting an improvement in activity. But the NAHB buyer traffic index held at low levels, dampening some of the upside. The new home sales data tend to be quite volatile and subject to revisions, so there is risk that we see a change to the recent history. We expect inventory to remain low given the weak pace of single family housing starts, which will leave months’ supply hovering around 5 months.”
- Durable Goods Orders (Thurs): Economists estimate orders climbed 2.0% in March. Nondefense capital goods orders excluding aircraft is estimated to have climbed by 1.0%. “Company figures showed a surge in aircraft bookings, which should support another big gain in headline durable goods orders,” Morgan Stanley’s Ted Wieseman. “With upside in ISM orders and backlogs, firming in capital spending plans in regional manufacturing surveys, and fading weather drag, we look for core capital goods orders to also move higher in March after a pullback in February.”
- Initial Jobless Claims (Thurs): Economists estimate claims climbed to 315,000 from 304,000 a week ago. “The four-week moving average of initial jobless claims has fallen below 320k, and continuing claims have trended lower,” noted Nomura economists. “These movements point to steady improvement in the underlying labour market trend. However, we may see some volatility in claims due to Easter falling later this year.”
- Kansas City Fed Manufacturing Index (Thurs): Economists estimate this regional activity index slipped to 8 in April from 10 in March.
- Univ. of Michigan Consumer Confidence (Fri): Economists estimate this index of sentiment climbed to 83.0 in April from 82.6 in March. “The preliminary April sentiment reading from the University of Michigan was higher than expected at 82.6 (up 2.6 points from March), rising gasoline prices and volatile equity markets notwithstanding,” said Credit Suisse economists. “Gasoline prices are continuing to edge higher, and the swings in the financial markets may be taking a toll on consumer attitudes. We forecast consumer sentiment for all of April at 82.4, just below the month’s preliminary reading.”
Deutsche Bank’s David Bianco is one of Wall Street’s more cautious strategists. Here’s a summary of his recommendation from his new weekly commentary: “April’s high volatility swung the S&P ~5% from an 1890 high to 1815 low. This means that investors are unsure in their macro outlooks. What’s increasingly uncertain is the degree to which growth accelerates and 10yr Treasury yields climb. We think those expecting sustained GDP growth of >3% should prefer smaller growth (high PE) stocks over larger value (low PE) stocks. This outlook aligns more with an 1850 S&P yearend target as yields should more quickly ascend toward normal. Those expecting GDP growth to be <3% should prefer low PE mega-caps as the climb in yields should be limited and support higher fair value steady-state PEs, and could raise the S&P to 2000 within 12 months.”
For more insight about the middle market, visit mid-marketpulse.com.
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