- Global markets drift amid uneventful OPEC, ECB meetings. Wall Street remains in a holding pattern this morning as caution rules ahead of Friday’s jobs report; the S&P 500 is flat over the past two sessions. Overseas, the European Central Bank (ECB) concluded its policy meeting today, leaving key rates unchanged, as expected; shares in Europe showed little reaction and remain mixed in afternoon trading. Markets in Asia are also split, with the exception of Japan, where continued yen strength dragged the exporter-heavy Nikkei Index down 2.3%. A meeting of OPEC members, meanwhile, is having little effect on WTI crude oil prices, which are hovering near the $49/barrel mark. Treasury yields are lower across the board, and COMEX gold is trending modestly higher.
- May ADP employment report supports summer Fed rate hike. ADP said that the private sector created +173,000 net new jobs in May, matching expectations and accelerating from the upwardly revised 166,000 reading in April. While financial markets may not believe this, Federal Reserve Bank (Fed) officials have said job gains in the range of 125-150,000 per month are sufficient to tighten the labor market and push up wages. So even at 173,000, labor market conditions are still tightening. The U.S. Bureau of Labor Statistics will release its May Employment Situation Report on Friday. The consensus is expecting a 160,000 increase in jobs and a 4.9% unemployment rate.
- May vehicle sales exceed expectations, keeping Q2 consumer spending on track to support 3.0% GDP growth. New vehicles sold at a 17.4 million annualized pace in May, exceeding expectations of a 17.3 million rate–which was also the pace in April. Sales in the first two months of Q2 2016 are running at 17.4 million, above the 17.1 million sales pace in Q1. The robust pace of vehicle sales keeps consumer spending in Q2 running near 3% and keeps Q2 gross domestic product (GDP) tracking to near 3.0% as well.
- Layoff announcements decline in May but remain elevated in the energy sector. There were 30,157 announced job cuts in May, down from 64,141 in April and the 41,034 in May 2015. Energy layoffs continue to be the big story, accounting for up to one-quarter (~20,000 per month) of all layoffs year to date in 2016. To put that in context, energy jobs only account for 1-2% of overall employment in the U.S. In the past 12 months, there were 635,000 announced layoffs economy-wide, roughly 100,000 higher than the levels seen in 2012-14, which, taken at face value, suggest some weakening in labor market trends. But 113,000 of the 635,000 announced layoffs in the past 12 months came in the energy sector. Although energy prices have stabilized and moved higher in recent months, oil production remains weak, and we continue to expect more layoffs in the energy sector in the coming weeks and months. Outside of energy, the layoff data are consistent with a solid labor market.
- New claims for unemployment fell 1,000 to 267,000 in the week ending May 28, as distortions from the Verizon strike and late spring break in NYC fade. Spring break in the New York City school system was very late this year and a strike at Verizon likely pushed claims higher temporarily in late April and early May; but now those distortions appear to have faded, leaving claims near historically low levels. More distortions loom, however, with Memorial Day, the end of the school year, and the annual auto plant shutdowns on the horizon. Claims are down 7,000 from their level 26 weeks ago. In the past, claims need to rise more than 75,000 over a six-month (26-week) period to indicate a recession, so clearly there is no recession signal from claims. The level of claims continues to point to a solid labor market, but we will continue to watch them closely.
- As expected, the ECB held monetary policy unchanged today. Per its March meeting, the ECB will expand its quantitative easing program to buy corporate bonds next week. Details of these purchases are expected to be released later today. The ECB also upgraded its GDP growth expectations to 1.6%, from 1.4% previously, with inflation expected to remain low at 0.2%.
- What happens after a strong week? The S&P 500 gained 2.3% last week, for its best week since early March. Interestingly, five of the last six times that has happened, the S&P 500 finished green the following week. Taking things out to two weeks, again, five of six times the S&P 500 was higher two weeks later. In other words, strong momentum can carry on in the very near term.
- 2,100 won’t go down without a fight. Yesterday the S&P 500 managed to eke out a gain, up 0.1%. This comes on the heels of losing 0.1% the day before. Yet, under the surface it was a productive day, as the S&P 500 closed well off its lows. Technically, the big round number of 2,100 is just overhead. As we’ve mentioned before, this area has been significant resistance going back a year. Just the past two days, for example, it was above this area, only to eventually close beneath 2,100. Incredibly, since August 2015, the S&P 500 been above the 2,100 level 20 times on an intraday basis, but only managed to close above this level 8 times.
- Challenger Job Cut Announcements (Apr)
- ADP Employment (May)
- OPEC Meeting in Vienna
- Eurozone: European Central Bank Meeting (No Change Expected)
- Mester (Hawk)