The market's undivided attention this morning was supposed to be on the March Employment Situation Report. That view of matters changed overnight, however, following the news that the U.S. launched 59 Tomahawk missiles at a Syrian airfield in response to the Assad regime's brutal chemical weapons use against rebel forces earlier in the week.
There was a knee-jerk sell-off in the futures market when that news hit, yet much of those losses have been recouped as market participants are looking at the missile launch as an isolated incident without any meaningful economic impact. The S&P futures were down just two points ahead of the employment report after falling as many as 16 points in the overnight trade.
If anything, that missile attack ratcheted up geopolitical angst as it has not been lost on the market, or the media, that it was conducted in the middle of President Trump's meeting with Chinese President Xi Jinping, which some pundits have suggested is a tacit signal to China that President Trump will indeed act unilaterally to curb North Korea's nuclear program if China doesn't flex its regional muscle to do the same.
Alternatively, Russia is spewing invective about the U.S. action in Syria, saying it will have negative consequences for Russia-U.S. relations.
In brief, then, geopolitical uncertainty went up as the missiles came down, yet the message of the market was that the attendant risks related to Syria are still within acceptable tolerance levels. Hence, the Treasury market, the yen, oil prices ($52.16, +$0.46, +0.9%), gold prices ($1265.80, +$12.50, +1.0%), and the CBOE Volatility Index (12.87, +0.48, +3.9%) were sporting relatively modest gains before the employment release.
Now, in terms of the employment situation in March, it was marginally tolerable.
The upshot of the report is that the unemployment rate fell to 4.5% due to a higher change in workers being employed (+472,000) as the labor force participation rate held steady at 63.0%. Still, payroll growth was noticeably soft in contrast to the robust gains registered in the March ADP report, average hourly earnings growth was only okay, and there was a decline in the average workweek.
The key takeaway from the report is that it spoke to the ongoing disconnect between the hard data and the soft data and it will challenge -- or should challenge -- the stock market's economic growth assumptions.
The notable headlines from the Employment Situation Report are as follows:
- March nonfarm payrolls increased by 98,000 (Briefing.com consensus 180,000). Over the past three months, job gains have averaged 178,000 per month.
- February nonfarm payrolls revised to 219,000 from 235,000
- January nonfarm payrolls revised to 216,000 from 238,000
- March private sector payrolls increased by 89,000 (Briefing.com consensus 175,000)
- February private sector payrolls revised to 221,000 from 227,000
- January private sector payrolls revised to 204,000 from 221,000
- March unemployment rate was 4.5% (Briefing.com consensus 4.7%) versus 4.7% in February
- Persons unemployed for 27 weeks or more accounted for 23.3% of the unemployed versus 23.8% in February
- The U6 unemployment rate, which accounts for both unemployed and underemployed workers, decreased to 8.9% from 9.2% in February
- March average hourly earnings increased 0.2% (Briefing.com consensus +0.3%) after increasing an upwardly revised 0.3% (from 0.2%) in February
- Over the last 12 months, average hourly earnings have risen 2.7% versus 2.8% for the 12-month period ending in February
- The average workweek in March was 34.3 hours (Briefing.com consensus 34.4), versus a downwardly revised 34.3 hours (from 34.4) in February
- March manufacturing workweek decreased 0.2 hours to 40.6 hours
- Factory overtime dipped 0.1 hour to 3.2 hours
- The labor force participation rate was unchanged in March at 63.0%
The S&P futures weakened some following the release of the employment data. They are currently down five points and are trading 0.2% below fair value; meanwhile, the yield on the 10-yr Treasury note has fallen three basis points to 2.31% and the CBOE Volatility Index has padded earlier gains and is now up 6.8% since yesterday's close.
Equity buyers, understandably, are lacking some conviction at the moment as their tolerance for high valuations in the face of rising geopolitical angst and devitalizing economic data is being tested.