EmailIn an almost literal and somewhat figurative sense, the market has been all over the map this week, having been pushed and pulled by war posturing in North Korea, soft economic data in the US, political confusion in the eurozone, and central bank views the world over that featured monetary easing of unprecedented proportion in Japan.
Today, the headline whipsaw is spinning again and it threatens to slice through the modest gains that were registered in yesterday's rebound effort.
The March employment report has been a focal point throughout the week, especially after the ADP Employment change and initial claims reports checked in weaker than expected.
Concerns that March nonfarm payrolls would also be disappointing were a factor cited in early reports today trying to explain the weakness in European and Asian equity markets (except Japan, which was up 1.6%) overnight. That factor was joined with added reports that North Korea has moved a few missiles to a launch pad and has made inquiries to Russia and Great Britain as to whether they are planning to evacuate their embassies in Pyongyang.
Throw in some weak retail sales out of the eurozone, an earnings warning from F5 Networks (FFIV), and a view from George Soros that yen selling could turn into an avalanche with bad implications and the S&P futures were understandably down 9 points in front of this morning's data.
The cold reality is that the S&P futures are now down 17 points as the March employment report was indeed weak -- very weak -- as businesses appear reluctant to hire.
Nonfarm payrolls increased just 88,000 (Briefing.com consensus 192,000) while private sector payrolls rose by 95,000 (Briefing.com consensus 210,000). There were upward revisions for January nonfarm payrolls (from 119,000 to 148,000) and February (from 236,000 to 268,000), but they were overshadowed by the sharp miss in March.
Over the prior 12 months, nonfarm payroll growth had averaged 169,000.
The average workweek increased by 0.1 to 34.6 hours (Briefing.com consensus 34.5), yet hourly earnings were flat (Briefing.com consensus +0.2%). The unemployment rate dipped 0.1 to 7.6% (Briefing.com consensus 7.7%), yet that is a misleading sign of improvement considering it was driven by a drop in the labor force participation rate to 63.3%, which is the lowest since May 1979.
A report like this will certainly keep the Federal Reserve fully engaged with its current policy course. At the same time, though, it raises legitimate concerns about the pace of economic recovery in coming months and the optimism about that recovery that has been reflected in rising stock prices and double-digit consensus earnings growth estimates that are too high in our estimation.
The trade balance report for February has taken a backseat to the employment report, although it did show a narrowing in the trade deficit to $43.0 bln from $44.5 bln that should factor favorably in Q1 GDP growth forecasts.
February exports were $1.6 bln more than January exports while February imports were up just $100 mln month-over-month. The bump in exports was driven by fuel oil (+$549 mln), petroleum products (+$534 mln), and organic chemicals (+$335 mln).
It is going to be a rough open for US equities, as the S&P futures are trading 1.2% below fair value. The question now is: will the Fed put soon take over or will participants simply put it to an overextended market today?
