US labour market data may become key event this week

Market Overview Video Transcript

Last week US stocks edged lower together with US dollar index on weak economic data which were mainly negative. On Monday single-family new home sales unexpectedly fell by 1.5% in March in US instead of their expected increase by 1.6%. The February reading was revised down from +2% to -0.4%. So, the US new homes sales are falling for the 3rd month in a row which looks strange amid extremely low interest rates and the lowest unemployment since 1973. The number of new homes not sold in March reached the highest level since September 2009.

On Tuesday durable goods orders rose in March by 0.8% which is twice worse than expected. At the same time, the consumer confidence index for April was below expectations. So far 168 companies from S&P 500 index reported their earnings. Market participants expect the total earnings of S&P 500 components to contract by 7.1% in Q1.

On Wednesday the next Fed meeting took place which resulted in several public statements that market participants regarded as dovish. This means the US regulator will not only refrain from the rate hikes but even may cut them if needed to stimulate the national economy. The US stock market indices edged slightly up while dollar weakened. The stocks rose on weak data from Apple which reported the lowered quarterly earnings for the first time in 13 years which pushed its stocks 6% lower.

On Thursday weak US GDP data were released for Q1. Its growth was the lowest in two years being at 0.5% which pushed the stock market indices much lower. The US currency found negative in stronger yen after the Bank of Japan introduced no additional monetary easing on its latest meeting. Investors expected the bank to cut the rates or expand monetary easing volumes.

On Friday weak performance of stock and US dollar index went on. Personal spending for March, Chicago PMI for April and consumer confidence index by Michigan University fell short of expectations. As a result, the weekly fall of Dow, S&P 500 and Nasdaq indices was the record in 3 months and a bit below 3%. Apple stocks tumbled in week almost 12% which was their record fall since January 2013.

This week the main economic data will be released in the US on Friday: the nonfarm payrolls and unemployment for April. The tentative outlook is neutral. We believe the labour market data is that important as they remain positive while the other US economic indicators start weakening. On Wednesday the trade balance data, labour productivity, factory orders and some other less important indicators will be released including the ADP labour market report. On Monday the consensus forecast of lower total earnings of S&P 500 components in Q1 was revised up from -7.1% to -5.9%. This may partly support the stocks before the new wave of quarterly earnings reports.