The jobs report was a disappointment this week but it was still a positive report (details below). The stock market continues to be in a corrective pattern that began in early March which marked the end of the Trump rally. Prices have been sluggish this past week and look weak from a technical perspective so a test lower is likely – more on this in the Chart Time section.
The economic data continues to be a mixed bag of high consumer confidence and now a disappointing jobs report. Earnings are the next catalyst for this market. We should begin to see earnings reports trickle in next week where analysts will parse the words of forward guidance and earnings expectations given by CEOs.
The political climate is still heated and now we are increasing our military activity in response to a chemical weapons attack in Syria. There is a lot going on to say the least and I expect that it will get more complicated as 2017 unfolds.
Stock markets expect good things for 2017 and they don’t like being disappointed.
Economic & Central Banking Snippets
- Most Federal Reserve policymakers expect to begin the process of reducing the size of the central bank’s balance sheet later this year if the economy stays on track, according to the minutes from the Fed’s latest policy meeting (released Wednesday). Members concluded that their intentions on the central bank’s asset portfolio should be communicated to the public well in advance of any change. Starting the process of reducing the Treasury and mortgage bond holdings would be a major landmark for the Fed as it unwinds its ultra-loose monetary policy.
- US employers added a less than expected 98,000 jobs for March, however, the unemployment rate fell to an almost seven-year low of 4.5%. Economists had expected a fall-off in hiring after job gains in January and February had averaged a robust 237,000. For March, employment growth occurred in professional and business services (+56,000) and in mining (+11,000), while retail trade lost jobs (-30,000).
- The labor force participation rate remained at 63.0% percent in March, and the employment/population ratio remained unchanged at 60.1%.
- Federal Reserve governor Daniel Tarullo said there is room to reform the Volcker rule’s ban on proprietary trading as it is damaging market-making activities at banks. Let’s see what happens.
Chart Time!
Politics! Politics! Politics!
- A bipartisan group of senators said it will introduce the 21st Century Glass-Steagall Act, which would require mainstream commercial banks and investment banks to be operated separately in the way the 1933 Glass-Steagall Act required. Treasury Secretary Steven Mnuchin and National Economic Council Director Gary Cohn have spoken in favor of reestablishing the barrier.
- The Trump administration and the Japanese government are in discussions to ensure that the bankruptcy of Toshiba Corp’s U.S. unit Westinghouse Electric Co does not lead to U.S. technology secrets and infrastructure falling into Chinese hands, a U.S. official said on Thursday.
Market Snippets
- Tesla (TSLA) delivered over 25,000 vehicles in Q1, of which about 13,450 were Model S and about 11,550 were Model X. This was a new quarterly record and represents a 69 percent increase over Q1 2016.
- Alphabet Inc. (Google) accused its former driverless-car executive Anthony Levandowski of quietly developing a competing company for more than three years before he left the internet giant and eventually sold the business to Uber Technologies Inc., according to legal documents released Monday.
- Spotify has struck a multi-year licensing deal with Universal Music, the largest record label in the world, a move that should help open a path towards an initial public offering. As part of the agreement Spotify will allow artists to choose to restrict their albums to its paid tier for the first two weeks of a release.
- WhatsApp (owned by Facebook) is working to launch peer-to-peer payments in India in the next six months marking the Facebook-owned app’s first foray into digital payments. (The Ken)
- Peabody Energy has announced its emergence from Chapter 11, and will list on the NYSE today under its former “BTU” symbol. The largest U.S. coal producer filed for bankruptcy protection in April 2016 following a sharp drop in prices that left it unable to service $10.1B of debt.
- Staples Inc. (SPLS) is exploring a sale to possible private-equity bidders, the retailer’s latest move to revive its turnaround effort after a failed merger with rival Office Depot Inc.(ODP) and as competition stiffens with web retailers such as Amazon.com Inc (AMZN).
- JAB Holdings, the owner of Caribou Coffee and Peet’s Coffee & Tea, said on Wednesday it would buy U.S. bakery chain Panera Bread Co (PNRA) in a deal valued at about $7.5 billion.
- Goldman Sachs is warning of the “unpleasant trend” in US auto sales, after a number of car companies reported weak figures on Monday, with the annualized sales pace in the US dropping 10%. Fewer cars being scrapped, coupled with fewer adults learning to drive and subsequently owning a car, means that auto sales are set for further declines, said the bank’s analysts.
- Ruby Tuesday, the struggling restaurant chain, reported its 19th straight quarter of revenue decline as it struggled to adapt to changing consumer habits and rising competition. The company recently closed over 100 stores. (FT)
- Ford Motor Co. (F) said Thursday that it would start building electric cars in China to tap into a state-sponsored boom in green-energy vehicles.
- “We recognize that it’s a growing public health concern,” KFC (NYSE:YUM) U.S. President Kevin Hochman told Reuters, giving its U.S. poultry suppliers until the end of 2018 to stop using antibiotics important to human medicine. It marks the last of the big three chicken restaurants, including Chick-fil-A and McDonald’s, to join the fight against the rise of superbugs.
International Snippets
- Peer-to-peer lending in China is at an inflection point as state regulators aim to transform it from a “Wild West” industry rife with fraudsters into a respectable market. The country’s financial system is currently dominated by large state-owned banks with little interest in lending to consumers and small businesses. (FT)
- Scotland’s economy contracted by 0.2% at the end of 2016, defying a broader expansion in the UK that will do nothing to bolster the country’s case for independence. Official stats from the Scottish government show
overall GDP growth in 2016 was 0.4%, compared to a 1.8% expansion in the UK as a whole. The figures come as the ruling Scottish Nationalist Party has announced a second referendum on the country’s independence following the UK’s Brexit vote. - Fitch has become the second major ratings agency this week to cut the South African government’s sovereign credit rating to junk status. S&P downgraded the government’s foreign currency debt to junk status on Monday, but Fitch went one step further today by also cutting the country’s rand-denominated debt to BB+.
- Greece has struck a deal with its creditors on reforms the country must carry out in exchange for continuing to receive money from its €86B bailout program. The deal, which encompasses pension cuts, a widening of the tax base, and other reforms has been months in the making and was closed during intensive talks this week. Finance ministers are set to confirm the agreement at a meeting today in Malta, according to two people briefed on the situation.