Last week brought a very busy economic calendar, continuation of U.S.-Sino trade talks, peak Q1 earnings reports, and a widely watched FOMC meeting. FOMC related volatility mid-week was washed out by week’s end with a goldilocks April employment report and supportive earnings reports.
- FOMC meeting delivered a unanimous 10-0 vote to keep rates on hold at 2.25-2.5%. Whereas the official statement emphasized patience and muted inflation, investment, and consumer spending, Powell’s presser made clear rate cuts were not the Fed’s next step.
- Big week for Q1 earnings, with the S&P 500 now 75% through. Estimates came in at -4.8% and sit today at -0.8%. Overall beat rates are 65.9%/55.6% (E/R). Forward guidance has been flat while outlooks have skewed notably to the positive.
- A tenth round of U.S. China trade talks ended last week without many new details or announcements and the contingencies are heading to DC to pick things up again this week.
- Arbor Research data scan of Q1 earnings call transcripts highlight comments that ‘wages‘ will be ‘higher’ versus ‘lower’ and ‘prices will rise’ are occurring at a greater frequency. The former has tended to lead realized wage gains by three to six months.
- A close look at high yield spreads suggests that market is digesting big YTD gains which are off to their 6th best start since 1987. Spreads bottomed in mid-April and haven’t moved with equity markets since that point.
- Only 15 times since 1950 have we seen four positive months start the year. Analysis of the remainder of the year show a 10% average return and only 1 negative outcome. However, interim drawdowns occurred in nearly every case.
- Sixteen companies are set to go public over the next nine days, making for one of the busiest stretches on record for the initial-public-offering market, according to data from IHS Markit
- The Spanish Socialist Workers' Party took 29% of the vote and will need to get support from other parties to form a government, the BBC says
Economic Release Highlights
- April employment report was goldilocks. 263,000 jobs brought unemployment down to 3.6%, the lowest since December 1969. Wages stayed flat at 0.2%/3.2% MoM/YoY. Both available workers (10mm @ record low) and labor participation rate (62.8%) fell.
- U.S. productivity roses 3.6% in the first quarter, the fastest pace since 2014
- March headline/core PCE came in at 1.5%/1.6% Y/Y increases respectively.
- March consumer spending beat expectations, increasing 0.9%.
- Personal income only climbed 0.1% in March but wage and salary growth of 0.4% reflects modest underlying strength for the consumer.
- April ISM Manufacturing Index registered its weakest reading in 2 years at 52.8 (-2.5). New orders of 51.7 (-5.7), export orders of 49.8, employment 52.4 (-5.3), and backlog orders 53.9 (+3.5) were the highlights.
- April ISM Non-Manufacturing Index of 55.5 came in below consensus, pulled down by employment (53.7) reading. Strong readings in new orders (58.1) and exports (57) pointed to fundamental strength. ISM combined was 55.2, the lowest reading since the 2016 election.
- PMI Manufacturing Index registered an increase of 0.2 to 52.6. New orders came in at a 3-month high and backlog orders rose as well.
- Global Manufacturing PMIs in April improved slightly to 50.4 (DM 50.7, EM 50.2). Year ago, levels were 53.8 (DM 55.6, EM 52.0).
- April M/M construction spending missed expectations at -0.9% driven by a -1.5% decline in single family home construction. A 0.5% increase in private nonresidential spending was offset by a -2.6% fall in commercial projects.
- Q1 ECI of 2.8% Y/Y is a bit on the heated side but remained in line with Q4 reading of 2.9% which was the highest quarterly reading of the expansion.
- The February Case-Shiller HPI increased 3% Y/Y, missing consensus expectation of 3.2% and down from prior release of 3.5%.
- Conference Board consumer confidence index registered 129.2, beating calls for 127.1 and a notable jump from the March 124.2 reading.
- Pending home sales +3.8% handily beat expectations for 0.7%, pointing to a good start for housing in the second quarter.