INSUBCONTINENT EXCLUSIVE:
NEW YORK: Wall Street will be watching next week’s economic data with a laser focus after a dismal February jobs report and recessionary
warning signals from US Treasury yields.
After the longest US government shutdown on record, bad weather and a late 2018 equities sell-off
muddied market participants’ view on the US economy in recent months, they are hoping for a clearer view from upcoming data.
Investors
have been anxious for reassurance since US Treasury 10-year note yields last Friday fell below three-month Treasury bill yields for the
first time since 2007.
The SP fell almost 2 per cent that day as yield curve inversions are widely viewed as recessionary indicators and
this one occurred two days after the US Federal Reserve pulled back on expected rate hikes amid signs of slowing economic
growth.
“Investors are going to be hyper-sensitive to data,” said Jack Ablin, chief investment officer at Cresset Capital Management in
“The yield curve inversion is the manifestation of investors’ fears that the US is getting caught up in a global slowdown.”
Many
investors say they do not expect a US recession any time soon
But they are seeking confirmation for this optimism in next week’s data, which includes retail sales, manufacturing activity, durable
goods orders and non-farm payrolls.
Reports that meet or beat expectations “would suggest the soft patch we entered the year with is
temporary” and would confirm economic projections for 2019, said Russell Price, chief economist at Ameriprise Financial in Troy,
Michigan.
February’s US retail sales data, due on Monday, and the March jobs report, scheduled for Friday, may be the most closely watched
indicators as economists want reassurance on the spending power and confidence of US consumers, which represent about 70 per cent of the US
economy.
US non-farm payroll growth almost stalled in February, with only 20,000 jobs created
Economists polled by Reuters last expected an average of 170,000 new jobs for March.
January retail sales rose a modest 0.2 per cent after a
December decline, but were not seen as strong enough to alter slowing US economic momentum
Economists, on average, expect a February increase of 0.3 per cent.
“If we were to witness a faltering of the U.S consumer, that would be
very difficult for markets, which are relying on the US consumer to propel the cycle through at least another year,” said Frances Donald,
head of macroeconomic strategy at Manulife in Toronto.
But Donald expects a rebound in both retail sales and jobs, since the last reports
were weakened by the December-January government shutdown
She will also watch durable goods data, due on Tuesday, for a view on corporate capital spending.
“I have less conviction capex will take
off markedly, but if we do see an improvement, that would be a substantial surprise,” said Donald.
Strong capex would also surprise TD
Ameritrade Chief Market Strategist JJ Kinahan, who says companies have stalled spending as they await the outcome of US-China trade
talks.
Kinahan says US-China tensions could mute market reactions to data “unless it’s so far off to the upside or the downside.” The
two countries are due to negotiate in Washington, D.C., next week after what Treasury Secretary Steven Mnuchin said were “constructive”
talks in Beijing this week.
Options contracts on the SP 500 Index and its tracking fund, the SPDR SP 500 ETF Trust, show a modest uptick in
the volatility priced into contracts expiring next Friday, compared with other near-term expirations.
“We should expect more volatile
days,” said Kate Warne, investment strategist at Edward Jones in St
“Probably the job numbers will be the biggest focus, partly because of February’s miss and partly due to the overall concerns about
slower growth.”
Manufacturing data will also be under close scrutiny on Monday after weak US and German March data last Friday, according
to Cresset’s Ablin.
While Ameriprise’s Price is expecting solid data, he cautions: “The market has more downside risk than upside risk
primarily because of the yield inversion, the concern over the tone of economic data over the past few months, not just in the United
States, but around the world.”
