U.S. Week Ahead
* Fixed income traders are eyeing the week ahead's $30 billion 3-year auction Tuesday, $21 billion 10-year reopening Wednesday and $13 billion 30-year reopening Thursday. Traders think that China could be in to buy 3-year and 10-year auctions and perhaps even mildly in the 30-year auction. Traders said China bought 5-year and 10-year Treasuries Friday, and had bought Thursday and Wednesday in intermediates.
* The minutes of the March meeting of the Federal Open Market Committee will be the main event in the week ahead, followed by a handful of speeches by Federal Reserve officials, the Producer Price Index, and a string of minor economic data releases. The FOMC minutes, to be released Wednesday at 2:00 p.m. ET, will be of interest to markets for one reason - any additional information as to when the Fed plans to commence liftoff on short-term interest rates, as well as what specific criterion they will use to reach that decision.
U.S. Markets
* Bond traders were relieved Friday while equities traders were disappointed - the Dow closed down triple digits and the Nasdaq was off nearly 2.6% - as the latest jobs report did nothing to clear up the economic outlook. The broad range of expectations had hinted at the confusion going into the March employment report. MNI's survey estimates had been as high as 275,000. Coming out on the other side, confusion continued.
* U.S. Treasury yields backed off earlier highs in response to the initially deemed Goldilocks number. U.S. Treasury yields were dragged even lower by falling German Bund yields, which were reacting to a report in the German newspaper Frankfurter Allgemeine Zeitung stating that the European Central Bank had modeled the impact on Eurozone inflation of E1 trillion in asset purchases by the Bank spread out over one year. Treasuries prices ended much higher with 10-year yields around 2.73%.
* In U.S. stocks, the Nasdaq losses weighed on the Dow Jones Industrial Average and S&P 500 throughout the day Friday. The Nasdaq closed down 110 or 2.59% at 4,127.726, with stocks such as Facebook, Google and Microsoft all under pressure. In contrast, the DJIA closed down 160 or 0.96% at 16,412.71 and the S&P 500 closed down 24 or 1.25% at 1,865.09. Shortly after the open after the jobs report the DJIA had posted a new intraday high of 16,631.63 and the S&P 500 posted an intraday high of 1,897.28. It was not to last.
United States
* The U.S. March jobs report, meeting analysts' expectations, was full of notable positives, with manufacturing hours the highest since 1945, construction hours showing a record gain, total employment finally topping the pre-recession peak and the two prior months revised upward. After revision, there are now two consecutive months with payrolls above 190,000. February's payroll additions are now 197,000, even stronger than March and up from the initially reported 175,000. With March payrolls up 192,000 after seasonal adjustment - virtually all of it private employment, making the ADP forecast of 191,000 look great for a change - total employment hit 116,087,000.
* The U.S. unemployment rate stayed at 6.7% and in fact was exceptionally stable compared to February. That stability was again in March not a product of any shrinkage in the labor force, which expanded by 503,000 as measured by the survey of households. The level of employment rose by 476,000. The number of unemployed rose only 27,000 and those in the category of "not in the labor force" declined 331,000.
* There is considerable support within the Federal Reserve system for using reverse repurchase agreements to manage short-term interest rates when the time comes to raise them, but reverse repos also have their skeptics. In particular, some Fed officials look askance at the headlong development of the overnight, fixed rate reverse repo facility. Skeptics are not necessarily opposed to using overnight, fixed rate RRPs as a tool to help the Fed nudge rates higher. But they want to be sure the Fed's policymaking Federal Open Market Committee carefully weighs all the implications of the new facility before deciding whether or not to move it to the operational stage.
* While markets try to read the tea leaves of Federal Reserve Chair Janet Yellen's remarks, seeking to put some precision onto her recent statements about the future of rate hikes, the Bank of Canada is likely to paddle its own canoe, based on domestic data, possibly lifting its key policy rate before its U.S. counterpart, analysts said. The same factors that will influence the Fed's eventual rate hike timing - getting to durable states of employment and of increasing inflation - are much the same drivers of the economies of both countries. And should the United States economy lift millions more workers into jobs, as Yellen wants to see before raising rates, the improved U.S. demand will strengthen the exports on which Canada's economy so greatly depends.
Canada
* Canadian employment rose by 42,900 in March, mostly among young people and heavily in part-time rather than full-time work, Statistics Canada reported Friday. The unemployment rate dropped 0.1 percentage points to 6.9%. Goods producing industries lost 15,600 jobs in March and the services sector gained 58,500. Full-time work increased by 12,800 jobs while part-time work gained by 30,100. As Statistics Canada noted, "overall employment growth in Canada has been subdued since August, 2013."
* The Canadian Ivey Purchasing Managers Index decreased two points to 55.2 in March, indicating a slower pace of economic growth in the country, but growth nonetheless, the Richard Ivey School of Business reported Friday. Despite the decline of the PMI index to its lowest level since December last year, following a modest 0.4-point rebound in February, the employment index held up, with a 0.7-point increase to 49.7.
Mexico
* The minutes of the Bank of Mexico's March 21 policy meeting, released Friday, showed board members seemed to breath a sigh of relief about inflation, as the data have proven they were correct in their predictions that recent price spikes were only temporary, and that market expectations have remained stable. But amid that good news their concern about the pace of economic recovery was clear, and prompted them to say they will revise down their growth forecast of 3-4% this year, although at they expect the economy to gain strength as the year wears on, the minutes showed.
Ukraine
* Moody's Investors Service late Friday downgraded Ukraine's government bond rating to Caa3 from Caa2. The outlook on the Caa3 rating was negative. The downgrade is driven by the following three factors, which exacerbate Ukraine's more longstanding economic and fiscal fragility: 1) The escalation of Ukraine's political crisis, as reflected by the recent regime change in Kiev as well as the annexation of Crimea by Russia (Baa1, on review for downgrade). 2) Ukraine's stressed external liquidity position, in light of a continued decline in foreign-currency reserves, the withdrawal of Russian financial support and a rise in gas import prices. This assessment accounts for the near-term liquidity relief that the recently agreed IMF staff-level agreement will provide.
Europe
* European Central Bank Vice President Vitor Constancio said Friday that the ECB Governing Council did not discuss details of a possible QE program during its April monetary policy meeting on Thursday. "We did not discuss details, because that was not the environment to do it," Constancio said in an interview with CNBC in Cernobbio, Italy. "Yesterday it was about the general view and it was very important that there was unanimity," Constancio said.
--MNI Washington Bureau; tel: +1 202-371-2121; email: dgulino@mni-news.com