Spate Of Economic Reports To Mark Start Of Fresh Month, Quarter

A new month, a new week and a new spate of reports on a busy economic calendar that might have some impact on how the markets go forward after March’s record month.

Key statistics out Monday morning are set to include a read on manufacturing and factory orders as well as construction. Auto sales (see below) are on the agenda Monday as are truck sales. Later in the week, we might get some better insight into what the Federal Reserve is thinking about how many interest-rate hikes there might be when the Federal Open Markets Committee (FOMC) minutes are released on Wednesday.

And Friday’s all-important jobs numbers come out with payrolls and the unemployment rate. (See below.) How might the Fed react to those?

Traders are likely to watch closely for the Institute of Supply Management’s (ISM) report out early Monday. Last month, the ISM index climbed to its highest reading since April 2014, at 57.7. That also was far better than the 56.2 reading Wall Street was expecting. The ISM numbers typically underscore the levels of business and consumer confidence, both of which have shown strong scores in recent months. Let’s see how they come out.

Meanwhile, in the topsy-turvy world of oil prices, Friday saw the U.S. benchmark challenging its three-day rally higher as traders appeared to question whether the Organization of Petroleum Exporting Countries’ (OPEC) pact to cut production was sustainable. That was a reversal of earlier sentiment that it looked like a pullback might be sustained, which is what helped propel prices of West Texas Intermediate (WTI) oil to break out of its low levels last week. WTI stayed above an important psychological $50 price level, but struggled throughout the day. On the month, WTI prices were down about 7%, though higher by nearly 4% on the week.

As the three major benchmarks bounced around in trading on the last day of the week, the month and the quarter on Friday, the Volatility Index (VIX), Wall Street’s so-called “fear gauge,” jumped back above 12 in midday trading, up nearly 6%.

Small Caps Gaining Strength? 

When markets turned south earlier in March, small cap shares were hit harder than the broader market. At its low, the small-cap benchmark Russell 2000 (RUT) was about 6% off its highs, whereas the S&P 500 (SPX) fell a little over 2.5%. In recent days, however, RUT appears to be playing catch-up. Perhaps this is a sign that economic confidence is gaining strength while there's still some policy uncertainty weighing on the larger companies? 

Why Jobs Numbers Matter

That might seem like a no-brainer, but remember what happened last month when the unemployment rate fell to 4.7% as nonfarm payrolls rose a seasonally adjusted 235,000 from January? Yes, the markets reacted well, as did consumer sentiment on the numbers that outpaced Wall Street’s expectations. And, the Federal Reserve looked at that as another feather in the raise-interest-rates cap.

Those numbers were helped by mild weather that might have fed the 58,000 rise of jobs in the construction industry, which followed a 40,000 increase in jobs in January. There appears to be some worry on Wall Street that last month’s heavy snowstorms, rains and tornadoes throughout the country might have pulled back those numbers.

Still, remember how quickly sentiment on a March interest-rate increase swung from below 20%, as charted by the CME FedWatch tool, to above 90% in days? Keep an eye on that, while keeping this in mind: The Fed has expressed clear interested in job growth, but members have said repeatedly that wage growth is still not where they would like it to be.

Did Incentives Drive Auto Sales?

When the nation’s largest car makers report March sales Monday, some industry experts say to expect the month to come in at the strongest pace since 2000, according to Automotive News. That would mean the industry, which has marked two straight years of record new-car sales might post its first year-over-year gain in 2017.

Here’s the expectation breakdown of the gain in sales from industry watchers: Kelley Blue Books at 3%; Edmunds at 2.1%; LMC Automotive at 1.6%; ALG at 0.2%. “The forecasts translate to an annualized sales rate of 16.9 million to 17.4 million, up from 16.66 million a year ago,” according to Automotive News.

What might be powering those sales? New-car incentives, which the report said that J.D. Power sees averaging at least 10% of the sticker price.

“If you only look at the sales numbers, it could be tempting to say that the industry is just as strong as it was a year ago,” Jessica Caldwell, Edmunds’ executive director of industry analysis, said in the report. “But there are several areas of concern this year lurking just below the surface. Inventories have reached levels not seen in more than a decade, and incentives are rising. We’re also seeing an increase in loan duration and indications of an increase in subprime lending, both of which demonstrate sales aren’t coming as easily as they used to.” Stay tuned.