Here's A Complete Guide To This Week's Economic And Market Craziness
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"Big week ahead," said High Frequency Economics' Jim O'Sullivan.
Last week, we asked if volatility had returned to the markets. Based on recent moves in the stock and bond markets, the answer to that question seems to be yes.
This week, we'll get the first round of May economic data including the crucial jobs report.
By the end of the week, we should know if the economy is really slowing in Q2.
Top Stories
What's Going On In The Bond Market?: Treasury bonds have been tumbling, which means interest rates are on the rise. Bank of America Merrill Lynch's Michael Hartnett warns the risks of a bond market crash are high. But UBS's Mike Schumacher thinks the sell-off has gone too far, and it's now time to "buy treasuries." Consensus seems to favor the bearish argument for now.
What's Going On In The Stock Market?: We witnessed a couple of 100+ point swings in the Dow last week. This is the most volatility we've seen in a while, and it's been months since we've had a 5% correction in the stock market. But if you think rising rates guarantee a sell-off, you'd be wrong. "Since 2000, rising bond yields have mostly been associated with rising equity markets," writes Deustche Bank in its Equity House View report. "Even sharp rises in bond yields have overwhelmingly coincided with positive equity returns (88% of instances)."
What's Going On In The Emerging Markets?: Emerging market currencies are getting slammed, bond prices are tumbling, and equity funds have been bleeding. Lots of strategists have declared the end of the emerging market bull run. But it's worth noting that global macro hedge funds have been cranking up their exposures to these markets.
Economic Calendar
ISM Manufacturing (Monday): Economists estimate that the ISM Manufacturing Index was unchanged at 50.7 in May, flat from a month ago. "District Federal Reserve Bank canvasses, combined with projected rebounds in a trio of mid-western purchasing-agent gauges, suggest that the Institute for Supply Management’s (ISM) factory activity barometer climbed to a three- month high of 51.7 in May," said Societe Generale's Brian Jones who has an above-consensus estimate for the report.
Construction Spending (Monday): Economists estimate that construction spending climbed by 0.9%. "Construction Spending should tick up +0.1% in April as recent weakness in housing starts weighs on rebounds from big declines in March government and private nonresidential spending that was probably partly weather related," said Morgan Stanley's Vincent Reinhart.
Motor Vehicle Sales (Tuesday): Analysts estimate that sales increased to an annualized pace of 15.1 million units in May, up from 14.9 million in April.
ADP Employment Report (Wednesday): ADP's estimate of private payrolls was 165,000 in May. "Private payrolls rose 57k more than the ADP estimate last month; misses have averaged 42k since Moody's became compiler of the data," said High Frequency Economics' Jim O'Sullivan.
ISM Services (Wednesday): Economists estimate that the ISM services index climbed to 53.5 in May from 53.1 in April. "However, the headline is less important than the employment subcomponent which fell to a five month low in April to 52.0," said Deutsche Bank's Joe LaVorgna.
Jobs (Friday): Economists estimate American companies added 165,000 payrolls in May, which is the same amount it added in April. The unemployment rate is expected to be flat at 7.5%. "Historically, the pace of payroll growth has slowed in the spring and summer months," said Wells Fargo's John Silvia. "However, with the relative consistency in the payrolls numbers and the lack of exaggerated gains in the first few months of the year, it is likely that job growth will remain consistent in the coming months."
Consumer Credit (Friday): Economists estimate that consumer credit expanded by $12.9 billion in April, up from $7.96 billion in March.
Market Update
Friday really freaked some people out as the stock market plunged during the last few minutes of the trading session. The chart gurus noted the manifestation of the Hindenburg Omen: a series of technical indicators that some believe precede a market crash.
Morgan Stanley analysts note that some craziness should be expected as the markets digest rising interest rates. "Transition periods can be very confusing, as the correlation (between stocks and bonds) becomes unstable."
We asked Peter Costa, President of Empire Executions, for his take on what'll drive the week. Watch:
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