I LOVE THE SMELL OF NAPM IN THE MORNING
US CREDIT WEEK AHEAD: JOBS REPORT, NAPM, STOCKS IN FOCUS
By Ellen Taylor
NEW YORK (MktNews) - The king of all monthly economic data will be released next Friday in the March employment report. That will be the single most important market-moving event of the week, economists and traders said.
Even so, it's likely to generate no more than 20 to 30 minutes of trading activity before prices settle back into a trading range that lately has paid more attention to movements in stock indexes than to economic fundamentals, they said.
"The markets are focused on stocks and spread products lately," said Carol Stone, an economist at Nomura Securities. "Everyone feels they already have a good fix on monetary policy for the next few months. So unless we get some major surprise in the data, it won't have much effect." And Stone doesn't expect many surprises.
There are a few interesting quirks in this month's release, however. One is the effect of census workers that will inflate the non-farm payroll data. Individual estimates suppose that the Labor Department hired about 100,000 extra people to handle the mailing and processing of census surveys, bringing payroll gains to about 250,000 to 300,000 in March. But at least one economist calculated that as many as 250,000 workers were hired, boosting its payrolls number to about 600,000, the economists said.
The hiring of additional census takers could also have an impact on the unemployment rate.
While most economists predicted the rate would drop to 4% from 4.1% in March, Stone said "we could see a 3-handle on the jobless rate because of the census workers. It's not really clear when the workers were hired to do the census." Still, Stone stands behind her call for a 4% jobless rate in March.
The other aberration is that for the first time since 1972, the March employment survey sample will cover five, and not four weeks. And there is a debate about whether seasonal adjustment factors will account for that disparity or whether it will add as much as 100,000 workers to the headline payroll number, bloating overall March payrolls by 425,000, one economist suggested.
"March almost never has five weeks," Stone agreed. "And it can only occur in a leap year," which adds a day to the end of February. "That's a good point that could also boost payrolls" in Friday's release.
The problem, says Stone, is that the employment survey week fell late in March since it must include the 12th and that fell on a Sunday, at the beginning of the survey week. Stone officially predicts that employers added 350,000 to payrolls in March, 250,000 excluding temporary census workers.
The National Association of Purchasing Management report will be released at 10 a.m. EST Monday and is being nervously awaited after Friday's Chicago purchasers released a sharp rise in the influential "prices paid" component to 74.2 from 68.9 in February, reflecting higher oil prices.
But Mike Cloherty, an economist at CS First Boston, said the Chicago report has recently begun to lag the data gleaned in the national report. Thus, he doesn't expect Friday's rise in prices paid to mean a higher prices paid index in Monday's national report.
"Last month's NAPM had 74.1 in prices paid which is pretty close to the Chicago number we got today," Cloherty said. "So maybe we are just closing the gap between the two reports" which won't suggest prices in the national release has to jump higher Monday.
Furthermore, Cloherty sees an easing in oil prices that will take pressure off the prices-paid component in coming months.
Stone agreed, saying "we should get some relief in energy costs by April", predicting prices paid will come in about 75 in Monday's data, with the overall index at about 57, little changed from 56.9 in February.
First Boston's Cloherty expects Friday's payrolls number to be "huge. Around 400,000." But he nets out 110,000 for the additional census workers, bringing payrolls to a more market-neutral 290,000.
As for the inflationary aspects contained in the jobs report, Cloherty doesn't see much likelihood of a higher average hourly earnings number. They were up 0.3% in February, down from +0.4% in January.
"Hourly earnings will be well-behaved. It will be same old story of extremely strong growth but without inflation," he said.
Traders are also looking ahead to Monday's release of Japan's Tankan report which is expected to show an improvement in sentiment among Japanese businesses.
Traders also are awaiting Monday's Tankan report, which is expected to show an improvement of sentiment among Japanese businesses that could promote more participation in Treasury markets.
Asian players still underwrite a significant portion of U.S. debt, Cloherty pointed out. In January, total Asian purchases of Treasuries came to $12 billion. Of that $5.5 billion were made by Chinese investment entities and $1 billion from Japan.
February Construction Spending will also come out Monday at 10 a.m. It rose 2.7% in January but will not have much price impact, economists said.
Also on Friday, Federal Reserve Chairman Alan Greenspan will speak via video link at 1:40 pm to the Civic Entrepreneur Organization of St. Louis, on "Technology and the Economy."
Though traders will be watching wire service headlines on the Fed chief's remarks, it is not expected to move the markets as the speech will come about midway between the March 21 and May 16 FOMC meetings with Greenspan expected to reiterate the Fed's recent party line of maintaining a "gradualistic" tightening approach to subdue economic growth.
Getting Friday's Japanese fiscal-year end and U.S. quarter-end dates behind the credit market will likely help jump-start trading next week, economists said.
"A lot of people were sidelined this week by the quarter-end date," said Cloherty. "So how will people respond when their balance sheets open up? Will they buy the dips?
"We could see the spread relationships change in April because it will be a new quarter and trading caps come off," he said.
Stone agreed there were both positives and negatives for the market in facing a fresh start.
"We could see more hedging difficulties if there is supply" out of sister markets, Stone said. But offsetting that is that "we could also more liquidity in the market with the new year" beginning in Japan. |
