Still bruised by the weak March jobs reports, markets are watching Thursday’s weekly jobless claims to see if the trend towards job growth remains intact.
Reported Friday, the March employment reportshowed a gain of just 120,000 nonfarm payrolls, well below the 203,000 expected and about half the average nonfarm payrolls added during the prior three months. Economists blamed a payback from employers hiring during the warm winter, when seasonal employees, such as construction workers, were able to work during normally cold months.
“Claims are going to be interesting because there’s a lot of skeptics who are thinking we’re seeing a rerun of last year where you saw claims and other employment data do very well until March and then get very choppy and go sideways. They’re going to watch and see if that’s the case,” said Art Cashin, director of floor operations at UBS.
Cashin said the markets will also continue watching officials from the Federal Reserve, with four speaking Thursday, after several other speeches this week. “There’s a saloonful of them, and then again on Friday,” said Cashin, noting the market is watching both Fed hawks and doves. “So far, everybody’s playing his own part, and there’s been no surprises.”
Stocks Wednesday recovered some of Tuesday’s losses, ending a five day losing streak, as European markets stabilized and investors shifted their focus back to domestic topics. Alcoa’s earnings, reported Tuesday, were a positive and drove that stock 6.2 percent higher Wednesday.
The Dow was up 89 at 12,805, and the S&P 500was up 10 at 1368, just shy of the key 1370 level.
What to Watch
Besides jobless claims, there is PPI data on inflation for March and international trade, all at 8:30 a.m. ET. The Treasury auctions $13 billion in reopened 30-year bonds at 1 p.m. There are just a few earnings Thursday. Rite Aid , Fastenal and LDK Solar report earnings ahead of the opening bell, and Google reports earnings after the close.
Credit Suisse economist Jonathan Basile said he expects to see weekly jobless claims rise slightly to 365,000 but he does not think the current jobs data signals an end to the job growth trend.
“When you get into a range of 360,000 or below for jobless claims, historically, it’s such a low probability you’re going to see a job loss in any given month,” he said. “You are in that sustainable range of continued claims. To me, it’s more about a vote of confidence that firms don’t have to keep cutting costs. Even if they’re right around that, there’s still a much higher probability you’re going to see gains rather than job losses.”
Jefferies Chief Financial Economist Ward McCarthy said the trade number will also be interesting since economists will tweak first quarter GDP forecasts based on it.
McCarthy will also be watching the Fed speak, with the four Thursday speakers following Fed Vice Chair Janet Yellen’s comments Wednesday evening.
New York Fed President William Dudley speaks at 7:15 a.m. on the regional and national economy at the Center for Economic Development in Syracuse, N.Y. He will take questions. He also speaks later, at 11 a.m. at Syracuse University.
Philadelphia Fed President Charles Plosser speaks at 12:30 on the economic outlook, and Minneapolis Fed President Narayana Kocherlakota speaks at 1 p.m. on the outlook. Fed Gov. Sarah Raskin speaks at 3:30 p.m. on the economy in Los Angeles.
“The parade of Fed officials will continue. Tomorrow we’ll hear from the ‘pro’ QE3 side, because we’ll hear from Bill Dudley, but you’re also going to hear from Plosser and Kocherlakota again,” said McCarthy. He said between Yellen and Dudley, “we’ll hear from the Fed brass which will tend to be pro QE3, and then we’ll also hear form the dissenters, or at least some of the dissenters.”
The market has been debating whether the Fed will pursue another round of “quantitative easing” or QE3, through the purchase of mortgage securities. The Fed’s last meeting minutes, released last week, made it seem as if there is no chance it would move on further QE at its April meeting, so now the markets are focused on the June meeting.
There were little new clues on the economic data the Fed will review for its April meeting, in the Fed's Beige Book, released Wednesday. “The beige book was remarkably similar to the February version, and there really wasn’t a lot going on. The headline I thought summed it up the best was ‘modest to moderate’ growth. That means we’re moving in the right direction but not a fast enough pace to satisfy the chairman (Bernanke),” McCarthy said.
He also said the report does not shift the view in favor of either the hawks or doves on the Fed.
“It looks like tomorrow, the QE3 is probably going to get slapped around at least toward the middle of the day, but we could start out with a QE3 high when we hear from Bill Dudley,” said McCarthy
“When rates backed up pretty sharply in the second half of March, I think that was a throw in the towel on QE3, and we’ve made back a lot of that, but we have not made back all of it. That suggests to me that QE3 is not off the table, as far as the market is concerned,” McCarthy said.
Nat Gas Under $2
Natural gas futures Wednesday fell to a new decade low settle of $1.984 per million BTUs, breaking the key psychological $2 level for the first time since 2002. Energy Information Administration inventory data is expected at 10:30 a.m. Thursday.
John Kilduff of Again Capital said he expects to see an injection of 28 billion cubic feet into storage. “The monthly EIA report yesterday just pointed to more production coming on line, a record amount,” he said.
“It was pretty bearish for natural gas,” said Kilduff.
As stocks sold off in the past week and European sovereign yields jumped, U.S. investment grade and high yield corporate credit spreads also widened, making some names attractive.
Joel Levington, managing director of corporate credit research at Brookfield Investment Management, pointed to the corporate debt of J.P. Morgan and Wells Fargo , ahead of Friday’s earnings report.
“Investment grade financials bond spreads have been moving wider, at a more accelerated pace than industrials and utilities. From what we’ve seen in the last couple of days, most financials have widened between 10 and 30 basis points,” he said.
He pointed to the Wells Fargo 2021 issue. “On March 20, the spread was 107 basis points over the 10-year Treasury. Yesterday, it was 149,” he said. ..You’re talking about a 40-basis-point move in one of the best in class banks. Certainly from a rating standpoint, it’s hard to get better ratings than Wells.”
“High yield has held in relatively well. I think it was off 9 basis points yesterday and fund flows last week remained positive despite the choppy market ... it’s becoming more difficult for those at the lower end of the investment spectrum to finance transactions,” he said. “If they’re coming with new issuance, they’re coming with more covenant protection and heftier spreads.”
Corporate issuance, running at a record pace last quarter, slowed to a crawl this month. Just $1.3 billion dollars worth of bonds came to market this week, with one deal Wednesday, according to Thomson Reuters IFR.
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