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Overnight Sentiment: Traders Look Past Latest European Disappointment, Toward US Jobs

Tyler Durden's picture




 

Here is what happened in Europe overnight, and why the market sentiment is already negative in advance of an NFP number which many are watching closely as a miss of expectations will cement the thesis that the US economy has now rolled over and will likely need more nominally dilutive aid from central planners to regain its upward slope:

  • Spain Services PMI for April 42.1 – lower than expected. Consensus 45.4. Previous 46.3.
  • Italian Services PMI for April 42.3 – lower than expected. Consensus 43.7. Previous 44.3.
  • France Services PMI for April 45.2 – lower than expected. Consensus 46.4. Previous 46.4.
  • Germany Service PMI for April 52.2 – lower than expected. Consensus 52.6. Previous 52.6.
  • Euro-area Service PMI for April 46.9 – lower than expected. Consensus 47.9. Previous 47.9.

And while the data was bad enough to send European stocks and US stock futures lower, the latest meme spreading as the first US traders walk in, is one of reNEWed QE expectations already, if a very weak one for now.

More from BofA:

Market action

Asian equity markets were mixed today with the Shanghai Composite inching up 0.5%. The rest of the region's markets finished lower as investors worried about global growth prospects. The Hang Seng fell 0.8% while Korean Kospi markets dropped 0.3% to close below the psychologically important 2000 level. The worst performing market was the Indian Sensex down 1.9%. In Japan, the Nikkei was closed for holiday.

European equities are trading lower ahead of this weekend's elections in France, Greece, Germany and Italy. The most important elections will be the French Presidential elections and the Greek parliamentary elections. In the aggregate Europe equities are trading 0.7% lower. The region's blue chips are falling less the broader market down 0.6%. At home, futures are pointing to a 0.2% lower opening as investors temper there expectations before today's April employment report.

The dollar is stronger against the rest of the major currencies which has led to weakness in commodities leading to almost a 1% fall in WTI crude while gold is down 0.4% with the absolute price falling to $1629.53.

Treasuries are trading flat across the curve ahead of this morning's payroll report. The 10-year yield is currently trading at 1.93%. In Europe, UK gilts are flat while yields on the Italian and Spanish 10-year notes are 3bps lower.

Overseas data wrap-up

The ECB yesterday left its benchmark interest rate unchanged at 1% and refrained from hinting at any forthcoming LTRO but rather tried to dampen expectations for such a move, confirming our view there will likely be no such move before the summer. ECB President Mario Draghi insisted credit could only slowly revive with a turn around in confidence and improved demand. A final and particularly strong message from the ECB was that the Bank had done its job, but national governments still had some homework to do whether on banking, fiscal or structural reforms.

The euro area composite PMI for April was revised down to 46.7 from the flash estimate of 47.4: now showing an even larger fall from 49.1 in March. Moreover, having climbed to a touch above the 50 "no change" mark at the start of 2012, the composite PMI has now fallen all the way back to its Autumn lows.

Today's events

The only thing on the economic calendar today is the release of the April employment report.

Payroll preview

We expect nonfarm payrolls to expand by 155,000 in April after a 120,000 increase in March. Over the past few months, job losses across state and local government have moderated and so, we expect private employment to match the increase in the headline. Under our forecast, the three-month trend in headline employment runs 172,000 per month from 212,000 in March. This slowing momentum is consistent with the tone in most labor market indicators; most notably, the four-week moving average on initial jobless claims is running at its highest level since January.

Recall that the payroll report is noisy. The monthly change needed for a statistically significant move in payroll employment is +/- 100,000. In our view, part of the weakness in March was a function of noise and part of the weakness was a function of weather. Our forecast assumes the weather payback grows in April, but that the 'noise' to abates somewhat. Put differently, our forecast of 155,000 is somewhat lower than the average over February and March of 180,000.

With softer employment growth, we see the unemployment rate rising to 8.3% from a cycle low of 8.2%. Getting the unemployment rate right requires a view on employment and on the rate of labor force participation. We expect labor force participation to rise slightly after falling 0.1ppt last month to 63.8%. The last Conference Board confidence survey showed more respondents reporting that jobs were "not so plentiful", implying a desire to look for but an inability to find work. We are not looking for any surprises in hours worked or earnings. The workweek will likely remain flat at 34.5 while hourly earnings are expected to rise 0.2% MoM, consistent with relatively soft wage growth.

 

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Fri, 05/04/2012 - 07:21 | 2396110 EscapeKey
EscapeKey's picture

Germany is still expanding! Rally on!

Fri, 05/04/2012 - 08:10 | 2396169 GetZeeGold
GetZeeGold's picture

 

 

I'll take seconds as long as the Germans are paying for it.

 

Fri, 05/04/2012 - 07:23 | 2396113 Sam Clemons
Sam Clemons's picture

Since printing more money is such a panacea, why doesn't the Fed just print money for all of us?  Why do we even have to work or invest?

Fri, 05/04/2012 - 08:34 | 2396212 King_of_simpletons
King_of_simpletons's picture

It is called a Welfare state and it is happening now.

Fri, 05/04/2012 - 07:27 | 2396114 LongSoupLine
LongSoupLine's picture

Sentiment lower?... Well, crap someone better throw an algo bone headline then.

Edit: whew...good news, Spain must be fixed...the IBEX is up nearly 2%

Fri, 05/04/2012 - 07:27 | 2396118 gun4A
gun4A's picture

EUR bullish :)

Fri, 05/04/2012 - 07:28 | 2396120 evolutionx
evolutionx's picture

ECB Fear Indicator climbed again near record level

Banks deposited over 805!  billion with the ECB

http://www.cds-info.com

Fri, 05/04/2012 - 07:37 | 2396130 The Swedish Chef
The Swedish Chef's picture

These numbers makes me laugh. NFP, initial claims, blablabla... Banks and traders still go by them as if they meant something but is´s only herd psychology: you sell because others will and viceversa. 

 

In reality, all equity prices are about is how many people are manning the printing press. 

Fri, 05/04/2012 - 07:40 | 2396133 Sam Clemons
Sam Clemons's picture

This is an area where technology has made life worse.  It really only takes one person to flood the world with new money nowadays.

Fri, 05/04/2012 - 08:16 | 2396175 GetZeeGold
GetZeeGold's picture

 

 

Yeah....but the whole world knows about it in a flash.

 

Fri, 05/04/2012 - 08:16 | 2396176 disabledvet
disabledvet's picture

and when that "person" is the US Treasury Secretary "a meaningless dollar always and everywhere has tremendous implications." this whole "triumph of the will" b.s. in finance is wrecking economies globally. the oddity that the rest of the world is NOT responding as they did and SHOULD (by devaluing as well) is having major political ramifications for those that wish to go "toe to toe with de poor and lazy Americans." In short "the world should be screaming about the massively undervalued dollar" and not trying to live in some fantasy world of "we're rich now."

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