Today's Coffee - Good Friday Employment
Equity markets were closed today in the United States due to the Good Friday holiday. However, please find our discussion below on today's very important economic data releases.
OVERSEAS MARKETS
With many markets across the world closed today for Good Friday and other local holidays, the Chinese market celebrated a record breaking trading day. This is concerning to me, as it follows Wednesday's announcement from the Chinese central bank that it would hike the reserve requirement for banks again, to 10.5% of deposits. Shares of many real estate related firms rose Friday, despite Tuesday's announcement by the government that it planned to aggressively work to control speculative housing construction, which it feared could lead to a collapse of the asset class.
The banking sector was one of few to move lower on Friday, as it seems the investment community may be missing the point of the government's efforts. Real estate firms should not rise in that kind of environment, unless the government lacks credibility. Speculation exists that enforcement level regulators have slacked in follow through on government initiatives, due to corruption and concern for recessing local economies. China's SHSE-SZSE CSI 300 Index climbed 0.92% on the day.
In Japan, the NIKKEI 225 slipped 0.04%, while South Korea's KRX 100 was unchanged. Despite developing unrest in Pakistan, its Karachi 100 moved 0.51% higher on the day. The Russian RTS Index edged up 0.19%, as oil prices have held up relatively well since the end of the Iranian crisis. While energy shares may benefit in the near-term from today's employment report, we would look for them to weaken after further economic data likely shows a slowing U.S. economy. As unrest continues in the Ukraine, the PFTS Index fell 1.06%.
ECONOMIC DATA & ANALYSIS
While U.S. equity markets were closed, economists kept busy today, due to the key employment situation report released at 8:30 this morning. The report was decisively positive, as nonfarm payrolls were reported 180,000 higher in March, significantly above the consensus view of economists surveyed by Bloomberg, who anticipated an increase of 135,000. In addition, February's concerning measure of 97,000 was revised higher to 113,000. But that's not all, unemployment decreased to a five-year low, measuring 4.4%, compared to expectations for a rise to 4.6%. At the same time, average hourly earnings increased in line, at 0.3% in March, and 4.0% year over year.
So, you must be asking, why are firms hiring if orders and other indicators seem to indicate light capital spending. Well, the manufacturing sector actually showed a decrease, while the service sector grew. It seems that the housing, (do I dare call it a crisis?) issue, has not spread deeply enough as yet to more significantly impact consumer spending. However, we've only just started to see consumer sentiment weakening, and inflation continues to find a home in food and energy prices.
Construction employment rebounded in March, after weakening in February, as the weather improved. We find the construction information concerning and possibly indicative of speculative building that may add to the excess residential inventory that already exists on the market. Also, we are not sure this data will hold up over the medium term, since housing companies like Lennar (LEN) have only recently revised their expectations lower for 2007. In Lennar's case, it pulled them completely after viewing the outlook positive in January. I think it's too early to say yet if this data is reliable for future forecasts.
You would expect the market to view the employment information very positively, but CNBC showed data on past Good Friday releases of the employment situation report, and in all instances where the report showed growth ahead of expectations, the stock market weakened on Monday. This probably occurred due to rising expectations of a Fed hike. The treasury market seems to be pricing in a decreasing likelihood of a Fed ease, and that means the likelihood of a hike increases, but not until economic data shows strength. The first quarter GDP report and leading indicators report will be important to watch. In light of recent housing concerns, I have to view this report as a net positive for equities. However, inflation remains a top concern, and something we cannot take our eyes off of, as the Fed surely will not.
At 10:00 a.m. today, February wholesale inventories were announced. Expectations were for a measure of 0.4%, versus 0.7% in January. The actual measure of 0.5%, while not as positive as expectations, reflects a ratio of sales in excess of inventory build at wholesalers. This is a positive sign for the economy, in our view. Later today, at 3:00 p.m., consumer credit for the month of February will be announced.
COMMODITY MARKETS
Despite the end of the Iranian crisis, we are still working on a special report on the energy sector.
STOCK SPECIFIC NEWS
Kirk Kerkorian announced a surprise bid to take Chrysler off the hands of DaimlerChrysler (DCX) for a cool $4.5 billion. If that sounds like a lot, don't feel so bad for Kirk. It's a fifth of what he offered for the automaker twelve years ago. Kerkorian's wholly owned investment company, Tracinda, is seeking negotiation exclusivity in exchange for a $100 million deposit. Kerkorian's offer is short of a competing $4.7 billion bid from Canadian auto parts manufacturer Magna International. We anticipate a bidding war is developing for the Chyrsler brand and assets, and shares of DCX should benefit, in our view.
To receive "The Greek's Week Ahead" and our daily reports via email, click here and provide us with your email address. We respect your privacy and will never share your information with any third party. (disclosure)
OVERSEAS MARKETS
With many markets across the world closed today for Good Friday and other local holidays, the Chinese market celebrated a record breaking trading day. This is concerning to me, as it follows Wednesday's announcement from the Chinese central bank that it would hike the reserve requirement for banks again, to 10.5% of deposits. Shares of many real estate related firms rose Friday, despite Tuesday's announcement by the government that it planned to aggressively work to control speculative housing construction, which it feared could lead to a collapse of the asset class.
The banking sector was one of few to move lower on Friday, as it seems the investment community may be missing the point of the government's efforts. Real estate firms should not rise in that kind of environment, unless the government lacks credibility. Speculation exists that enforcement level regulators have slacked in follow through on government initiatives, due to corruption and concern for recessing local economies. China's SHSE-SZSE CSI 300 Index climbed 0.92% on the day.
In Japan, the NIKKEI 225 slipped 0.04%, while South Korea's KRX 100 was unchanged. Despite developing unrest in Pakistan, its Karachi 100 moved 0.51% higher on the day. The Russian RTS Index edged up 0.19%, as oil prices have held up relatively well since the end of the Iranian crisis. While energy shares may benefit in the near-term from today's employment report, we would look for them to weaken after further economic data likely shows a slowing U.S. economy. As unrest continues in the Ukraine, the PFTS Index fell 1.06%.
ECONOMIC DATA & ANALYSIS
While U.S. equity markets were closed, economists kept busy today, due to the key employment situation report released at 8:30 this morning. The report was decisively positive, as nonfarm payrolls were reported 180,000 higher in March, significantly above the consensus view of economists surveyed by Bloomberg, who anticipated an increase of 135,000. In addition, February's concerning measure of 97,000 was revised higher to 113,000. But that's not all, unemployment decreased to a five-year low, measuring 4.4%, compared to expectations for a rise to 4.6%. At the same time, average hourly earnings increased in line, at 0.3% in March, and 4.0% year over year.
So, you must be asking, why are firms hiring if orders and other indicators seem to indicate light capital spending. Well, the manufacturing sector actually showed a decrease, while the service sector grew. It seems that the housing, (do I dare call it a crisis?) issue, has not spread deeply enough as yet to more significantly impact consumer spending. However, we've only just started to see consumer sentiment weakening, and inflation continues to find a home in food and energy prices.
Construction employment rebounded in March, after weakening in February, as the weather improved. We find the construction information concerning and possibly indicative of speculative building that may add to the excess residential inventory that already exists on the market. Also, we are not sure this data will hold up over the medium term, since housing companies like Lennar (LEN) have only recently revised their expectations lower for 2007. In Lennar's case, it pulled them completely after viewing the outlook positive in January. I think it's too early to say yet if this data is reliable for future forecasts.
You would expect the market to view the employment information very positively, but CNBC showed data on past Good Friday releases of the employment situation report, and in all instances where the report showed growth ahead of expectations, the stock market weakened on Monday. This probably occurred due to rising expectations of a Fed hike. The treasury market seems to be pricing in a decreasing likelihood of a Fed ease, and that means the likelihood of a hike increases, but not until economic data shows strength. The first quarter GDP report and leading indicators report will be important to watch. In light of recent housing concerns, I have to view this report as a net positive for equities. However, inflation remains a top concern, and something we cannot take our eyes off of, as the Fed surely will not.
At 10:00 a.m. today, February wholesale inventories were announced. Expectations were for a measure of 0.4%, versus 0.7% in January. The actual measure of 0.5%, while not as positive as expectations, reflects a ratio of sales in excess of inventory build at wholesalers. This is a positive sign for the economy, in our view. Later today, at 3:00 p.m., consumer credit for the month of February will be announced.
COMMODITY MARKETS
Despite the end of the Iranian crisis, we are still working on a special report on the energy sector.
STOCK SPECIFIC NEWS
Kirk Kerkorian announced a surprise bid to take Chrysler off the hands of DaimlerChrysler (DCX) for a cool $4.5 billion. If that sounds like a lot, don't feel so bad for Kirk. It's a fifth of what he offered for the automaker twelve years ago. Kerkorian's wholly owned investment company, Tracinda, is seeking negotiation exclusivity in exchange for a $100 million deposit. Kerkorian's offer is short of a competing $4.7 billion bid from Canadian auto parts manufacturer Magna International. We anticipate a bidding war is developing for the Chyrsler brand and assets, and shares of DCX should benefit, in our view.
To receive "The Greek's Week Ahead" and our daily reports via email, click here and provide us with your email address. We respect your privacy and will never share your information with any third party. (disclosure)
posted by The Greek | 11:54 AM
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