Weekly Market Update
Notable events over the last week
- Last Friday saw the release of the April employment report which showed nonfarm payrolls expanded by 160k, coming in well below the median consensus expectation of 200k. March job growth was revised down just to 208k from 215k. The softening in April job growth was driven by several factors, hiring in the retail trade sector (-3k, previous: 39k) stalled on the month, dragging down overall service sector employment growth. Construction payrolls were nearly unchanged after averaging 24k in the prior three months and Government payrolls contracted.
- US wages continued to show signs of stabilisation, although at modest levels. Average hourly earnings for all private employees rose 0.3% MoM (2.5% YoY), and the average workweek rebounded to 34.5 in April (previous: 34.4), in line with expectations. Fed funds futures pricing seemed to indicate that while expectations for a June rate hike cooled, the implied probabilities for the rest of 2016 actually increased slightly. This may have been due to the wage growth element of the April jobs report coming in higher than expected.
- Several FOMC members commented last week. Atlanta Fed President Lockhart cited the threshold of 200k in nonfarm payroll growth as a condition for a June hike and said he felt the EU referendum was a factor in the Fed’s decision process. San Francisco Fed President Williams set the bar slightly lower, noting that he was not looking for an upside surprise in the data and could be persuaded to argue in favour of raising rates at the next FOMC meeting simply by status quo readings on the economy. Presidents Bullard and Kaplan seem to share the view that June remains on the table, contingent on no deterioration in the data. Bullard, in particular, downplayed risks from a UK vote to exit the EU.
- UK composite PMI headline surprised to the downside, declining by 1.7pts to 51.9. This was driven by both manufacturing, in which output declined by 2.8pts to 50.1 (its weakest print since March 2013), and services, where output fell by 1.4pts to 52.3, below consensus expectations of 53.5. The construction headline index also dipped 2.2pts in April, its fourth consecutive month of decline
Q1 Earnings Season
Over 87% of the S&P 500 has reported quarterly results. The latest wave of announcements were more mixed, resulting in a decline in the proportion of earnings beats to 71% from 73% although this is still above the 5 year average.
In aggregate, companies are reporting earnings that are 4.1% above the estimates. This percentage is slightly below the 5 year average (+4.2%). Seven sectors are reporting a YoY decline in earnings, led by the Energy, Materials, and Financials sectors. Three sectors are reporting YoY growth in earnings, led by the Consumer Discretionary and Telecom Services sectors.
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