MarketView for April 29

 

Summary

 

For the most part it was an up day on Wall Street, with gains in the equity indexes being assisted by upbeat results from companies such as Merck & Co and a rebound in Facebook and other momentum stocks.

 

Merck's shares rose 3.6 percent to $58.72, giving the S&P 500 its largest lift, after it reported stronger-than-expected earnings. Meanwhile, Britain's Reckitt Benckiser Group confirming talks to buy Merck's consumer health business, the latest asset up for grabs in a wave of recent pharmaceutical deals.

 

Earnings estimates have rebounded, however, as more companies have reported results. First-quarter profit growth for S&P 500 companies is seen at 3.7 percent, based on actual results and estimates for companies yet to report, compared with a forecast for 2.1 percent growth at the beginning of the month, Thomson Reuters data showed.

 

Shares of Facebook gained 3.6 percent to close at $58.15, a day after selling off along with a host of other momentum names. Shares of Twitter were up 4.6 percent to $42.62 ahead of its results after the bell, when it reported 255 million monthly active users, up from the previous quarter but not enough to satisfy investors. The stock was last down 8.6 percent.

 

Sprint rose 11.3 percent to $8.27. The No. 3 mobile provider reported an increase in quarterly revenue, as expected, due to a new billing plan that lowered wireless expenses.

 

On the down side, Coach reported a sharp decline in North American sales, sending its shares down 9.3 percent to $45.71.

 

Archer Daniels Midland finished down 2.6 percent at $43.23 after its first-quarter profit and sales missed Wall Street estimates.

 

The Fed's two-day policy meeting began on today, with the central bank expected to again scale back its monthly bond purchase program. The Street will also be eager to see any guidance on when the Fed might raise interest rates.

 

Economic data has suggested the economy is continuing to gain momentum after the winter lull. Nonetheless, consumer confidence fell in April but remained near a six-year high, while home prices rose in February.

 

Approximately 6.3 billion shares changed hands on the major equity exchanges, a number that was below the 6.6 billion share average this month, according to data from BATS Global Markets.

 

Consumer Confidence Falls

 

Consumer confidence fell in April as consumers were discouraged by business and labor market conditions, according to a report released on Tuesday by the Conference Board.

 

According to the Board its index of consumer attitudes fell to 82.3 in April from an upwardly revised 83.9 in March. The consensus had been for a reading of 83.0. March was originally reported as 82.3.

 

The expectations index rose to its highest since August, hitting 84.9 in April from an upwardly revised 84.8 in March, while the present situation index fell to 78.3 versus an upwardly revised 82.5 last month.

 

The "jobs hard to get" index rose 32.5 percent from 31.4, revised from 33.0.

 

German Inflation Accelerates Less Than Expected

 

German annual inflation accelerated in April but less than expect, preliminary data showed on Tuesday, complicating the European Central Bank's decision on whether to act against deflationary trends.

 

Euro zone inflation is running at 0.5 percent and there are concerns about deflation. A report due on Wednesday is expected to show inflation in the euro bloc picking up to 0.8 percent in April, but that would still be well below the ECB's medium-term target of just below 2 percent.

 

On Monday ECB President Mario Draghi played down the likelihood of any imminent money-printing to buy assets, saying that while low inflation would persist, such quantitative easing remained a way off, according to a source.

 

German consumer prices harmonized to compare with other European Union countries - the HICP measure of inflation used by the European Central Bank - rose by 1.1 percent in April, data from the statistics office showed.

 

That was less than the 1.3 percent forecast in a Reuters poll although it compared with 0.9 percent in March.

 

Other data on Tuesday indicated that lending to euro zone households and companies declined further in March and money supply growth slowed.

 

Although ECB staff forecasts in March pointed to inflation picking up to 1.5 percent in 2016, and 1.7 percent in the final quarter of that year, the central bank has faced pressure to act - in particular from the International Monetary Fund.

 

Last week, Draghi set out three scenarios under which the bank could act: an unwarranted tightening of the policy stance, impairments in the transmission of policy, or a deterioration of the medium-term inflation outlook.

 

ECB Vice President Vitor Constancio said on Monday April's inflation figures for the euro zone should not alone trigger a policy change because "it's not just one or two numbers that matter." Moderate inflation, combined with a strong labor market and low interest rates, is helping to boost domestic demand, on which the government is relying to prop up growth this year as foreign trade is expected to be weak.

 

A survey by GfK market research group published on Tuesday showed German consumer morale remained at its highest level in more than seven years heading into May as consumers' income expectations hit a record high, helped by modest inflation and expectations that pay will rise.

 

Unions have already secured strong wage hikes for chemical workers and public sector employees this year and GfK market research group has said the first wage deals in 2014 suggested that wage increases of 3 percent or more were realistic.

 

Looking Ahead

 

Employment likely rose at its fastest clip in five months in April and the jobless rate probably dropped in a show of strong economic momentum after a gloomy winter. Nonfarm payrolls probably advanced by 210,000 jobs this month, stepping up from a 192,000-gain in March, according to a Reuters survey of economists. That would leave hiring well above its first-quarter average of 177,667 jobs per month.

 

The unemployment rate is forecast slipping one-tenth of a percentage point to 6.6 percent, a five-year low previously touched in January.

 

The economy stumbled badly in the first quarter as an unusually cold and disruptive winter took its toll. However, data ranging from retail sales to industrial production suggest the economy is now out of hibernation and economic growth will likely exceed a 3 percent annual pace in the second quarter.

 

The Labor Department will release its monthly jobs report on Friday at 8:30 a.m. Federal Reserve officials meeting on Tuesday and Wednesday will not have access to the data, but it could add to an ongoing debate over whether the Fed is moving too slowly in reducing its monetary stimulus.

 

Payrolls are expected to grow to around 200,000 per month for the remainder of this year, a level consistent with economic growth in the 2.5 percent to 3.0 percent range.

 

Nonetheless, Yellen has pointed to the unusually large number of Americans who are either suffering a long spell of unemployment or who are working part-time because they are unable to find full-time work as justification for maintaining an extraordinarily easy monetary policy. The private sector, which in March had regained all the jobs lost during the 2007-09 recession, is expected to account for April’s entire anticipated job gains.

 

Outside of government payrolls, which are forecast to have been flat for a second straight month, job gains in April are likely to have been as broad-based as they were in March.

 

Manufacturing employment likely rebounded after dipping in March. Another month of solid gains in construction payrolls is expected, but the hiring trend could slow in the months ahead as residential construction loses some steam. Average hourly earnings probably rose 0.2 percent in April after being flat the prior month.

 

The length of the workweek likely held steady at 34.5 hours in April after bouncing back in March from its winter-depressed levels.