April is around the corner, which means the hotly anticipated March economic stats will soon be released.
“Just as we saw numerous economic data falter due to weather over the past three months, we are now entering the period when pent-up demand should begin to emerge, and a reacceleration in economic activity will become more apparent,” said Deutsche Bank’s Brett Ryan.
This week kicks off with a heavy load of manufacturing surveys. That will lead up to Friday’s all-important March jobs report.
Here’s your Monday Scouting Report:
So What If Biotech’s A Bubble ?: The biotech sector is a corner of the stock market that presents massive opportunities for those willing to take on immense amounts of risk. The recent plunge in biotech stocks have folks wondering 1) if the sector was in a bubble, and 2) if that bubble is bursting.
But this story has been of little concern for those who don’t have their life-savings invested in the sector. The main reason for this is that the biotech sector represents just a tiny, low-single-digit share of the stock market.
“Bubbles pervade society,” said Rich Bernstein to Business Insider in February. “They are bigger than the financial markets. I don’t think the biotech speculation is that broad, so no bubble in my opinion.”
Before You Get Too Excited About The Jobs Report…: The labour market may be the most important measure of an economy. As such, traders and economists around the world watch closely the monthly employment situation report published by the the U.S. Bureau of Labour Statistics.
However, Allianz’s Mohamed El-Erian argues that the monthly jobs report has been losing its value as a leading indicator of policy and the economy. “For a while, the information content of the jobs report had evolved from providing lagging insights to also serving as an important leading indicator,” wrote El-Erian in a post for Business Insider. “Today’s employment conditions, however, no longer act as a powerful driver of overall economic and political developments. That role has been transferred — to business investment when it comes to the considerable economic upside, and to geo-political risk on the downside.”
- Chicago PMI (Mon): Economists estimate this regional activity index slipped to 59.5 in March from 59.8 in February. “Economic activity in the Chicagoland area chilled a bit during the winter months relative to the strong levels at the end of fall,” said Bank of America Merrill Lynch economists who expect the index to improve to 60.5. “Given improved weather, we expect growth to accelerate; albeit modestly given that the pace of expansion continues to be generally high.”
- Dallas Fed Manufacturing Activity (Mon): Economists estimate this regional manufacturing index climbed to 2.5 in March from 0.3 in February.
- Vehicle Sales (Tues): Economists estimate the pace of vehicle sales climbed to 15.8 million March. “Mid-month industry surveys point to a solid recovery in auto sales in March as the weather started to improve after they fell from a seven-year high of 16.3 million in November to a 15.3 million unit pace from December to February during the severe winter,” said Morgan Stanley’s Ted Wieseman.
- Markit U.S. Manufacturing PMI (Tues): Economists estimate Markit’s PMI climbed to 55.9 in March from 55.5.
- ISM Manufacturing (Tues): Economists estimate the ISM’s index climbed to 54.0 in March from 53.2 in February. “The Empire Manufacturing Index picked up in the month and the Philadelphia Fed Index, another regional indicator of the manufacturing industry, surged in March,” noted Wells Fargo’s John Silvia. “Furthermore, data from the Kansas City Fed also points to a strengthening factory sector.”
- Construction Spending (Tues): Economists estimate spending climbed by 0.1% in February. “We think there may have been extra spending on residential improvements as people dealt with damage from weather,” said Citi’s Peter D’Antonio.
- ADP Employment Change (Wed): Economists estimate private companies added 190,000 payrolls in March. “ADP has printed above the first-reported BLS private jobs estimate six of the last eight months,” noted Credit Suisse economists. “The average absolute miss over the last year has been 49K (although excluding the unusually large 151K error in December, the average miss is 40K).”
- Factory Orders (Wed): Economists estimate orders climbed by 1.2% in February. “Factory orders were weak across the board in January,” noted Nomura economists. “However, orders will probably improve in February, as signaled by the increase in the advanced reading on durable goods orders which set a high baseline for overall orders.”
- Initial Jobless Claims (Thurs): Economists estimate claims climbed to 319,000 from 311,000 last week. “Initial jobless claims likely rose after the previous week’s surprise decline,” predicted Citi’s Peter D’Antonio. But the four-week moving average remained at a post-crisis low, excluding the 2013 California computer backlog-related plunge.”
- Trade Balance (Thurs): Economists estimate the trade deficit narrowed to $US38.5 billion. From Morgan Stanley’s Wieseman: “On the import side, a rise in oil prices will likely boost petroleum products, royalty fees paid for Olympic broadcast rights will temporarily increase service imports by about $US0.7 billion, and a good gain in auto assemblies points to higher North American motor vehicle and parts trade. Port data showed sluggish inbound cargo volumes, however, pointing to otherwise muted goods imports. On the export side, reversal of a large rise in gold exports will likely be a drag, but higher auto production and petroleum product and agricultural export prices should provide a boost.”
- Markit U.S. Services PMI (Thurs): Economists estimate Markit’s PMI climbed to 55.7 in March from 55.5 in February.
- ISM Non-Manufacturing (Fri): Economists estimate the ISM’s services index climbed to 53.5 in March from 51.6 in February. “The ISM non-manufacturing headline index declined in February as the business activity and employment indexes fell,” said Nomura economists. “However, the more optimistic reading on business activity in the Northeast Region implied by the New York Fed’s business leaders’ survey suggests that we could see an increase in the ISM non-manufacturing index in March.”
- The Jobs Report (Fri): Economists estimate U.S. companies added 200,000 payrolls in March with the unemployment rate slipping to 6.6%. “The weather didn’t quite return to seasonal norms in March, but it was nowhere near as bad as it was between December and February,” noted Capital Economics’ Paul Ashworth. “So even though the Midwest and Northeast were hit by another big snowstorm during the week that last March’s survey was conducted, we have penciled in a gain of 200,000 in payrolls in March.”
Fed Chair Janet Yellen suggested that it could be six months between the end of quantitative easing and the first interest rate hike. This has investors increasingly concerned about how they should be positioned in advance of rising policy rates.
Credit Suisse’s Andrew Garthwaite looks to recent history for guidance.
“Historically, markets have not sold off until six months before the first tightening and even during the first rate hike (after a long series of cuts), the de-rating in the 12 months following the first rise has been relatively modest at 2% (8%, if we exclude 1997),” wrote Garthwaite.
“Perhaps the period that most resembles the current episode is around 28 January 2004, when Greenspan changed from discussing a ‘considerable period’ to ‘the Committee believes that it can be patient’. The market correctly understood this to mean that a rate hike was coming (rates were raised in June) — and equity prices fell by 4% over the following 6 months. However, the crucial difference is that Greenspan’s remark preceded the first rate hike by five months, while Yellen’s remark would suggest that the first rate hike will only happen in a year’s time, at the earliest.”