We’re coming off of an encouraging week, with the S&P 500 closing at an all-time high.
On Friday, we learned that U.S. companies added 175,000 jobs in February, which was stronger-than-expected. But the unemployment rate ticked up to 6.7%. It’s worth noting 601,000 Americans were unable to make into work because of inclement weather.
This week has very little scheduled on the economic calendar. But, who knows what could surprise us?
Here’s your Monday Scouting Report:
A Harbinger Of Inflation: Some folks have been noticing some real signs of inflation in the world lately. Perhaps the most important figure from Friday’s jobs report was average hourly earnings, which climbed 0.4% month-over-month, or 2.2% year-over-year. This was hotter than expected, and it may reflect tightness in the labour market. Furthermore, it means inflation pressure. “Given the uncertainty there is about how much slack is left in the U.S. labour market, this should be ringing alarm bells all over the place,” said Kit Juckes, a global strategist at Société Générale.
Citi currency strategist Steven Englander was on the same page as Juckes, noting that this puts pressure on the Federal Reserve to tighten monetary policy sooner rather than later. “You can argue that maybe the Fed has convinced investors of their commitment to low policy rates and a slow pace of policy rate increase in 2015 and beyond, but we find a lot of scepticism among investors that there is as much slack out there as the Fed has indicated,” he said. “In fact, we think that a solid [nonfarm payrolls number] either in Friday’s release or next month’s will cause investor fears of Fed tightening to [rise] back up sharply.”
Another Harbinger Of Inflation: “In the year to date, the [Commodity Research Bureau’s BLS Foodstuffs index] is up 14.9%, marking an upside move more than two standard deviations above the historical 3-month average return,” reported Business Insider’s Matthew Boesler. “Simply put, food markets are seeing prices increase at a pace reminiscent of the historic surge of 2010 and 2011, in the run-up to the high.”
“This sharp rise in food prices could prove a significant problem for some economies ahead, particularly as many currencies have weakened considerably, making imports more expensive,” said Bartosz Pawlowski, global head of EM strategy at BNP Paribas.
- Job Openings & Labour Turnover Survey (Tues): Economists estimate there were 4.00 million job openings in January, up from 3.99 million the month prior. “Labour turnover remains low, but it has been edging up,” said High Frequency Economics’ Jim O’Sullivan. “The report will include the annual revision to the data.”
- Treasury Budget (Wed): Economists expect the Treasury Department to report a $US200.0 billion budget deficit. “Tax refunds rose 12% ($13 billion) this February from last, but 8% growth in withheld income and payroll taxes and upside in corporate tax receipts should still support a healthy gain net tax revenues,” said Morgan Stanley’s Ted Wieseman. “For all of fiscal year 2014 (ending in September), we expect the deficit to narrow to $US555 billion, or 3.1% of GDP, from $US680 billion, or 4.1% of GDP, in 2013.” Here’s Nomura: “Spending cuts, greater tax revenues and stronger economic growth have been supportive in narrowing the deficit. With the reduced level of government spending continuing into fiscal year 2014, the deficit should continue to fall. Consensus expects a budget deficit of $US218bn in February, likely due to the issuing of tax refunds by the government.”
- Retail Sales (Thurs): Economists estimate retail sales climbed 0.2% in February. Excluding autos and gas, they’re estimated to have inched up by 0.1%. “Motor vehicle unit sales posted a disappointing 1% rebound in February, but companies indicated sales strengthened in the second half of the months, raising optimism for a strong March,” said Morgan Stanley’s Wieseman. “Ex auto sales also appear to have started to see a decent pickup from recent weakness in the second half of the month as the weather started to moderate. Our retail analysts saw mall traffic trends in the second half of February that weren’t great but were at least less bad than earlier in February and in January.” Here’s Credit Suisse: “A sluggish rise in retail sales is expected as frigid weather likely dampened activity. Heating degree day figures suggest February was the coldest month for the country in years. The Fed’s Beige Book and ISM Nonmanufacturing results also point to weather effects. …we assume last month’s rare decline in nonstore retailers (online shopping) will reverse.”
- Initial Jobless Claims (Thurs): Economists estimate initial claims climbed to 330,000 from 323,000 last week. “Initial jobless claims probably normalized after two weeks of outsized swings, but another massive winter storm system that swept through the Midwest and South poses the risk of a lower print,” said Citi’s Peter D’Antonio. “If our estimate is correct, the four-week moving average continued to persist in the narrow 330-340K range that has prevailed since the beginning of the year. Despite week-to-week volatility due to storms, extreme cold and holidays, first filings have been remarkably stable on average.”
- Producer Price Index (Fri): Economists estimate PPI climbed 0.2% month-over-month. Excluding food and energy, they estimate it climbed by just 0.1%. “A jump in natural gas prices should outweigh lower seasonal petroleum prices in February,” noted Nomura’s economists.
- Consumer Sentiment (Fri): Economists estimate the University of Michigan’s preliminary estimate of consumer confidence climbed to 82.0 in March from 81.6 in February. “The positive effects of an improving labour market and rising home values — not to mention the prospect of better weather — should outweigh potential drags on consumer sentiment in early March,” said Credit Suisse’s economists. “The negatives include somewhat higher prices at the gas pump and concerning news out of Eastern Europe.”
Don’t forget to wish the bull market a happy birthday. The S&P 500 is up 180% since its March 6, 2009 low.
“Should this bull market celebrate its sixth birthday, and perform similarly to prior sixth-year bulls, we could be up another 26% to beyond 2340,” said S&P Capital IQ’s Sam Stovall.
“As always, use history as a guide, not gospel, especially since there has been a limited number of sixth-year bulls.”