US equity markets once again provided a constructive context for engagement as a result of economic data that was largely in-line with consensus expectations. Weekly jobless claims came in at 278k – slightly above the 270k expected. The backward looking Q4 Productivity and Costs data was actually very interesting: Nonfarm productivity – Q/Q change SAAR was expected to come in at -3.2%. It was less dire coming in at -2.2%. The unit Labor Costs – Q/Q change SAAR for the same period was 4.7% actually a bit hotter than the expected 3.3%. In summary, labor cost for Q4 rose less than expected while productivity in the period was less dramatic than expected. Factory Orders – M/M change was 1.6% versus 2.0% consensus. ISM Non-Mfg. index was 53.4 versus 53.1 consensus. Today, it is obviously all about the payrolls as we discussed yesterday.
Yesterday’s price action in US equity markets was more of the same as investors held their powder in anticipation of today’s Employment Report. Assuming the payrolls data is not too far outside consensus, US equity markets are staged to post their third consecutive weekly gain.
The Nasdaq closed flat with a gain of 0.1% while both the S&P 500 and Dow Industrials notched a gain of 0.3%. All three closed at or near their intraday highs. Volume on the NYSE rose 9.45% and 0.78% on the Nasdaq. Even more impressively, given the volatility that has gripped markets this year, all three major market indices have managed to posted three successive gains and are well above their 50 DMA. Clearly there is a fair amount riding on today’s data in terms of the potential for any follow through. As discussed recently, the number has to be just right. Not too hot, not too cold.
Of course the importance of today’s payrolls data is most central to investors in the context of the interest rate landscape and the next FOMC meeting which is set for March 15-16.
Few if any investors believe the Fed will move on rates in two weeks, despite the call by some at the Fed to keep an interest rate rise on the table for that meeting. The more likely scenario is that we continue to see gains in economic expansion over the next three months and a 25 bps move then.