U.S. stocks finished Friday's trading session near the unchanged mark after battling back from early pressure following a softer-than-expected March Labor Report and overnight missile strikes by the U.S. in Syria. Treasury yields and gold advanced, while the U.S. dollar and crude oil prices also gained ground, but experienced bouts of volatility. In very light equity news, PriceSmart (NASDAQ:PSMT) announced 2Q results that fell shy of the Street's expectations.
The Dow Jones Industrial Average (DJIA) moved 7 points to the downside to 20,656, the S&P 500 Index shed 2 points (0.1%) to 2,356, and the NASDAQ Composite ticked 1 point lower to 5,878. In moderate volume, 752 million shares were traded on the NYSE and 1.7 billion shares changed hands on the NASDAQ. WTI crude oil rose $0.54 to $52.24 per barrel and wholesale gasoline was $0.02 higher at $1.75 per gallon. Elsewhere, the Bloomberg gold spot price increased $3.04 to $1,254.74 per ounce, and the dollar index, a comparison of the U.S. dollar to six major world currencies, was 0.5% higher at 101.15. Markets were mostly lower for the week, as the DJIA was flat, the S&P 500 Index declined 0.3%, and the NASDAQ Composite shed 0.6%.
PriceSmart Inc. (PSMT $87) reported fiscal 2Q earnings-per-share (EPS) of $0.90, versus the FactSet estimate of $0.92, as revenues rose 2.0% year-over-year (y/y) to $793 million, compared to the expected $794 million. Shares traded solidly lower.
March nonfarm payroll job growth misses severely
Nonfarm payrolls (chart) rose by 98,000 jobs month-over-month (m/m) in March, compared to the Bloomberg forecast of a 180,000 increase. The rise of 235,000 seen in February was revised to a gain of 219,000 jobs. The total downward revision to the job gains in February and January was 38,000. Excluding government hiring and firing, private sector payrolls increased by 89,000, versus the forecasted gain of 170,000, after increasing by 221,000 in February, revised from the 227,000 rise that was initially reported.
Professional and business services continued to show solid growth to lead the way, while retail sector employment fell and job growth in construction slowed from February's sharp increase. Weather may have had an impact as March saw a heavy snow storm in the Northeast, while February's unseasonably warm weather likely pulled some gains forward in the construction sector.
The unemployment rate fell to 4.5%, the lowest since May 2007, from 4.7%, where it was forecasted to remain, while average hourly earnings rose 0.2% m/m, matching projections and following February's upwardly revised 0.3% increase. Compared to last year, earnings were 2.7% higher, matching estimates and following the 2.8% gain in the previous month. Finally, average weekly hours remained at February's downwardly revised 34.3 rate, versus estimates of 34.4.
The data appeared to catch economists off guard, given the employment data leading up to the report, notably Wednesday's blowout figures from ADP. However, the report is likely keeping concerns about a faster-than-expected pace of Fed rate hikes in check. The March figures likely did little to calm concerns about the wide spread between "soft" and "hard" data. After a "typical" weak first quarter, economic growth should accelerate and based on history, soft data is likely to retreat, while hard data is likely to accelerate.
Consumer credit, released in the final hour of trading, showed consumer borrowing advanced by $15.2 billion during February, just topping the $15.0 billion forecast of economists polled by Bloomberg, while January's figure was adjusted higher to an increase of $10.9 billion from the originally reported $8.8 billion. Non-revolving debt, which includes student loans and loans for vehicles and mobile homes, climbed by $12.3 billion, while revolving debt, which includes credit cards, increased by $2.9 billion.
Wholesale inventories (chart) were unadjusted at a 0.4% m/m gain for February, matching expectations, and following January's 0.2% decline. Sales rose 0.6% m/m, after January's upwardly revised 0.3% gain. The inventory-to-sales ratio, the amount of time it would take to deplete inventories at the current sales pace, remained at January's 1.28 months level.
Treasuries were lower despite some early strength, with the yield on the 2-Year note ticking 5 basis points (bp) higher to 1.29%, the yield on the 10-Year note gaining 4 bps to 2.38% and the 30-Year bond rate increasing 3 bps to 3.01%.
The bond and currency markets were choppy following the employment report and amid a flare-up in geopolitical concerns in the wake of last night's U.S. missile strikes in Syria, and showed little reaction to President Trump's favorable comments on his meeting with China.
Europe nudges higher, Asia mixed
European equities ticked higher, showing some late-day resiliency in the face of a jump in geopolitical uncertainty after the U.S. conducted missile strikes in Syria in response to a chemical attack on civilians earlier this week. The strikes fostered a relatively limited reaction for the markets, though crude oil prices briefly spiking and pared gains but extended a recent rally.
The markets appeared to shrug off the much softer-than-expected U.S. labor report, as well as scrutiny on the second day of talks between the U.S. and China. Political uncertainty in the region remained. In economic news, French industrial and manufacturing production missed expectations, while German exports unexpectedly rose and the nation's industrial production surprisingly jumped.
UK manufacturing and industrial production both unexpectedly declined. The euro and British pound were lower versus the U.S. dollar and bond yields in the region moved to the downside.
Stocks in Asia finished mixed as the global markets reacted to a flare-up in geopolitical concerns after the U.S. launched missile strikes in Syria, while also eyeing the two-day summit between the U.S. and China. Crude oil prices spiked briefly following the U.S. military action but later pared gains amid a relatively limited reaction. Headlines regarding the start of the U.S. and China meeting lacked details but some reports suggested the talks were off to a good start.
Japanese equities overcame early downside pressure as the yen pared some of its gains. Mainland Chinese stocks rose and shares in Hong Kong finished flat, with the rise in crude oil prices helping the latter recover. Oil & gas issues saw some strength to help nudge Australian securities higher. South Korean equities dipped and Indian listings continued to trim gains from a recent rally to record highs in the wake of the heightened geopolitical concerns and yesterday's raising of a non-benchmark interest rate by the Reserve Bank of India.
Stocks dip as bond rates continue slide
U.S. stocks dipped on the week as domestic and European political uncertainty lingered and the markets eyed the highly-anticipated first meeting between President Trump and his Chinese counterpart Xi. Financials led to the downside and utilities outperformed as Treasury yields resumed a slide amid a flare-up in geopolitical concerns, resurfaced uncertainty regarding tax reform, and as the minutes from the Fed's March meeting suggested the Central Bank may act sooner than expected on shrinking its bloated balance sheet.
Conviction was also corralled by the growing concern about the widening divergence between "soft" and "hard" data as March auto sales figures solidly missed expectations to precede Friday's much softer-than-forecasted Labor Report, though ISM and Markit surveys of manufacturing and services sector activity both showed continued growth, with the former sector remaining firmly in expansion territory. The U.S. dollar ticked higher and gold jumped, while crude oil prices shrugged off a bearish oil inventory report to extend a recent rally and bolster the energy sector.
Next week's economic calendar will likely foster a delayed reaction as key data points, retail sales and the Consumer Price Index (CPI), will fall on Good Friday when the U.S. markets will be closed. Leading up to Friday, the docket will deliver the NFIB Small Business Optimism Index, JOLTS Job Openings, the Producer Price Index (PPI) and the preliminary University of Michigan Consumer Sentiment Index. Finally, 1Q earnings season will begin and will likely garner attention amid elevated expectations of earnings growth.
The recent pullback in stocks and failure of healthcare reform appears to have helped take some of the froth out of the market and correct some overly optimistic sentiment conditions. We believe this will prove to be healthy for the continuation of the bull market, with an improving economy and a still business-friendly administration supporting further gains. But potential political-induced volatility isn't limited to the United States, as the official Brexit process started. A UK recession doesn't appear to be in the cards at this point, but risks have risen; while U.S. recession risk remains quite low.
Reports on next week's international front that deserve a mention include: Australia—consumer confidence and employment change. China—lending statistics, CPI and PPI, and trade balance. India—CPI, trade balance and industrial production. Japan—machine orders and trade balance. Eurozone—investor confidence, industrial production, along with German CPI and investor sentiment. UK—inflation statistics and employment change.