World Week Ahead: Are they hiring?

Monday 30th April 2012

The latest clues on the state of the US jobs market will help determine the course for Wall Street as it wraps up a month where a rekindling of the euro zone's sovereign debt crisis took the shine off equities.

Following gains in each of the first three months of 2012, the Standard & Poor's 500 Index is down 0.4 percent so far in April. It's still up 11.6 percent for 2012, after advancing 4.4 percent in January, 4.1 percent in February and 3.1 percent in March.

Investors are looking for signs of improvement in the jobs market after a government report last week indicated that the US economy grew less-than-forecast in the first quarter, while weekly jobless claims rose.

Earnings from companies including Pfizer, Visa and Viacom will be scrutinised in the coming days. So far first-quarter results have exceeded expectations, albeit low ones, and offset euro worry.

Better-than-expected results from companies including Apple, Amazon and Expedia last week helped lift stocks and affirm the sense that the world's largest economy is holding up well amid signs of slower growth elsewhere. About 75 percent of the 271 companies in the S&P 500 that reported results since April 10 have topped analysts’ projections, according to data compiled by Bloomberg.

In the past five trading sessions, the Dow Jones Industrial Average rose 1.5 percent, while the Standard & Poor's 500 advanced 1.8 percent. The latest clues on the state of the US jobs market will help determine the course for Wall Street as it wraps up a month where a rekindling of the euro zone's sovereign debt crisis took the shine off equities.

Earnings from companies including Pfizer, Visa and Viacom will be scrutinised in the coming days. So far first-quarter results have exceeded expectations, albeit low ones, and offset euro worry.

In the past five trading sessions, the Dow Jones Industrial Average rose 1.5 percent, while the Standard & Poor's 500 advanced 1.8 percent. Payrolls data are due on Friday. After jobs growth in March eased to 120,000, the smallest gain since October and pushing the unemployment rate to a three-year low of 8.2 percent, economists are expecting a better picture for April.

Payrolls probably rose by 165,000 workers, according to the median forecast of 64 economists surveyed by Bloomberg. Also released this week are the ADP Employment Report, set for Wednesday, and weekly jobless claims data, due on Thursday. “The labour market is not going to roar, but it’ll keep improving,” Carl Riccadonna, a senior US economist at Deutsche Bank Securities in New York, told Bloomberg. “The economy is growing at a rate where job creation is inevitable.

To increase output, businesses have to add workers.” Meanwhile, major US banks are increasing their efforts to shield themselves from tighter regulations, including being forced to shrink or at least check expansion.

Key bank chief executives are meeting with Federal Reserve Governor Daniel Tarullo on Wednesday and talks are expected to focus on a Fed proposal to limit banks' exposure to other firms and governments. In Europe, the Stoxx 600 Index gained 0.5 percent last week.

The past week heightened uncertainty about efforts to contain the euro zone's debt crisis as Dutch Prime Minister Mark Rutte offered his cabinet's resignation on April 23 after a failure to agree on budget cuts to meet European Union deficit targets, before reaching agreement on Friday.

French president Nicolas Sarkozy remains on track to lose his job to his Socialist challenger in the second round of elections on May 6. Greek parliamentary elections are also fast approaching. And the general tone across Europe remains negative.

Britain unexpectedly fell into recession as its first-quarter GDP contracted, while Spain's credit rating was slashed by two notches by Standard & Poor's on concern about the nation's budget deficit and banking sector.

On Friday, Spain’s 10-year yield rose five basis points to 5.88 percent after climbing as high as 6 percent earlier in the day, according to Bloomberg, while Italy’s 10-year bond yields ended trade steady at 5.64 percent and French 10-year yields rose two basis points to 3 percent.

Both Spain and France are selling bonds this week. Spain is offering 3- and 5-year bonds on Thursday, while France will sell up to 7.5 billion euros of bonds. Entering the fray is ECB boss Mario Draghi who will speak with reporters after the bank's policy committee meets on Thursday. He's likely to say the central bank is holding a steady course.

BusinessDesk.co.nz

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