Morning Market Update

Upward Momentum Maintained

The equity markets continue to nudge higher ahead of Friday’s labor report, which is expected to show a solid gain in jobs to nonfarm payrolls, helping support the argument that the global economic recovery remains intact. A favorable reading of economic confidence in the euro-zone and carried over optimism from last week’s finalized safety net for debt-ridden Greece are helping the bulls trot in early trading. More M&A news in the form of Ford Motor Co announcing that it has reached a deal to sell its Volvo unit to China’s privately held Geely Holding Corp for $1.8 billion is also helping prop up sentiment. The markets showed little reaction to a flat reading of personal income and an expected rise in personal spending, and Treasuries are modestly lower in response to the report. In other equity news, Apollo Group Inc reported earnings that exceeded analysts’ forecasts. Overseas, Asia was mixed in subdued trading, while European markets are trading in the green on the aforementioned economic data.

As of 8:52 a.m. ET, the June S&P 500 Index Globex future is 6 points above fair value, the Nasdaq 100 Index is 9 points above fair value, and the DJIA is 34 points above fair value. Crude oil is up $0.64 at $80.64 per barrel, and the Bloomberg gold spot price is up $4.48 at $1,111.97 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.4% to 81.38.

Apollo Group Inc. (APOL $61) reported fiscal 2Q EPS ex-items of $0.84, three cents above the consensus estimate of Wall Street analysts, with revenues increasing 23% year-over-year (y/y) to $1.1 billion, roughly inline with the Street’s forecast. The for-profit higher education firm and parent of the University of Phoenix said it continued to see a shift in student enrollments towards bachelor degrees in 2Q and it believes the shift in student mix will result in more consistent, higher quality growth and profitability.

In M&A news, Ford Motor Co. (F $14) announced over the weekend that it reached a definitive agreement to sell its Volvo car unit and related assets to China’s privately held Zhejiang Geely Holding Corp for about $1.8 billion, paid in the form of a $200 million note and the remainder in cash.

Personal income flat, spending increased as expected, labor data the focus for the week

Kicking off the economic week, personal income (chart) was flat in February, compared to the Bloomberg estimate of 0.1% gain, and January was revised from a 0.1% increase to a 0.3% rise. Personal spending rose 0.3% in February, inline with the Bloomberg expectation, while January’s 0.5% increase was downwardly revised to a 0.4% gain. The savings rate declined to 3.1% in February, after a slightly upwardly revised 3.4% for January.

Also, the PCE Price Index, which is released with the income and spending data, increased 1.8% y/y in February, matching the consensus forecast, and January’s 2.1% rise was left unchanged. The core PCE Price Index, which excludes food and energy, was flat, compared to expectations of a 0.1% increase. Year-over-year, core prices moved 1.3% higher, inline with the consensus of economists surveyed. Treasuries are lower, extending modest losses after the income and spending data.

Labor data will likely dominate the economic week, beginning with Wednesday’s ADP Employment Change Report, where the forecast is that private sector employers added 40,000 jobs in March after declining by 20,000 in February. The ADP report is a reading of the state of the job market excluding government payrolls, which are expected to be boosted by Census Bureau hiring over the next several months. Also, weekly initial jobless claims, will continue the focus on the job market, with claims forecasted to dip slightly by 2,000 to 440,000.

However, Friday’s nonfarm payrolls report will headline the week, with the Bloomberg survey of economists forecasting payrolls grew by 190,000 in March, after falling by 36,000 in February, while the unemployment rate is estimated to be unchanged at 9.7%. Jobs data will start getting a boost from the government, as the Census Bureau has said it expects to hire 181,000 workers from January to March and 971,000 in the following three months, peaking in May, where they are anticipating adding 500,000 workers. We may see some movement in the equity markets before Friday as traders jockey for position ahead of the release because the US stock markets will be closed on Friday in observation of Good Friday.

Other releases on this week’s busy US economic calendar include the S&P/CaseShiller Home Price Index, construction spending, the Conference Board Consumer Confidence Index, MBA Mortgage Applications, Chicago PMI, ISM Manufacturing Index, factory orders, and consumer credit.

Materials supporting advance in Europe

Stocks in Europe are modestly higher in afternoon action, led by basic materials issues on an advance in metals prices such as copper and following a favorable reading of economic confidence in the euro-area. The Euro-Zone Economic Confidence Index rose from 95.9 in February to 97.7 in March, versus the expectation of economists surveyed by Bloomberg, which called for the Index to increase to 97.1. The index rose to the highest level since May 2008. In other economic news in the region, Sweden’s retail sales unexpectedly declined, falling 1% month-over-month (m/m) in February, compared to the increase of 0.3% that was forecasted. Meanwhile, UK data were mixed, with separate reports showing consumer credit rose more than expected in February, while mortgage approvals increased by a smaller amount than was forecasted for February. Later today, Germany is expected to report its preliminary Consumer Price Index for March, expected to increase 0.3 m/m. Britain’s UK FTSE 100 Index is up 0.2%, France’s CAC-40 Index is 0.4% higher, Germany’s DAX Index is up 0.7%, and Sweden’s OMX Stockholm 30 Index is trading 0.4% in the green.

Asia mixed as China gains ground

Stocks in Asia were mixed with equity markets in China moving higher, while major markets in Japan finished modestly lower in a subdued session. The Shanghai Composite Index moved 2.1% higher and Hong Kong’s Hang Seng Index finished up 0.9%, while the Nikkei 225 Index dipped 0.1%, bogged down by some profit taking amid some posturing ahead of the fiscal year end in Japan, which will come at the end of March. The decline in Japan came despite a smaller-than-expected drop in February large retailers’ sales, which fell 4% during the month, versus the consensus estimate of economists, which called for a 5.5% decrease. Meanwhile, South Korea’s Kospi Index declined 0.3% despite a report that showed the nation’s current account balance came in at a surplus in February, compared to the wider-than-initially reported deficit posted in January. Elsewhere, Australia’s S&P/ASX 200 Index finished flat following a report that showed new home sales fell 5.2% m/m in February. In equity news, a Chinese court handed down sentences of 7-14 years in jail to four employees of mining firm Rio Tinto (RTP $231) on charges of bribery and stealing secrets.