Weekend Market Update

Joke is on the Bears as Q2 Kicks Off in the Green      

After a strong start on Friday, US stocks lost some steam in the afternoon, but still managed to finish to the upside. All eyes today were on the US labor report, which came in relatively better than expected, as job growth exceeded 200,000 on the headline and private-sector levels, while the unemployment rate ticked slightly lower. Traders also took note of the ISM Manufacturing Index, which posted the twentieth-consecutive month of expansion, while a separate report showed a larger-than-forecasted decline in construction spending. In equity news, NASDAQ OMX Group and Intercontinental Exchange made a joint counter-proposal to acquire NYSE Euronext for about $11.3 billion, and General Motors announced that it sold its stake in Delphi Automotive. Additionally, GM and the rest of the auto industry reported mostly impressive increases in US March sales. Treasuries were modestly higher, while crude oil prices continued to climb. 

On Friday, the Dow Jones Industrial Average gained 57 points (0.5%) to 12,377, the S&P 500 Index rose 7 points (0.5%) to 1,332, while the Nasdaq Composite advanced 9 points (0.3%) to 2,790. In moderate volume, 908 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq. WTI crude oil rose $1.42 to $108.14 per barrel, wholesale gasoline gained $0.05 to $3.16 per gallon, while the Bloomberg gold spot price decreased $4.80 to $1,427.50 per ounce. Elsewhere, the Dollar Index-a comparison of the US dollar to six major world currencies-was 0.3% lower at 75.87. For the week, including dividends, the DJIA gained 1.3%, the S&P 500 Index rose 1.4% and the Nasdaq Composite added 1.7%.

In M&A news, NASDAQ OMX Group Inc. (NDAQ $28) and IntercontinentalExchange (ICE $119) announced that they have made a joint proposal to acquire NYSE Euronext (NYX $39) for $42.50 per share in cash and stock, or about $11.3 billion. The global securities exchanges said, based on yesterday's closing prices, the proposal represents a 19% premium over the price proposed by  Deutsche Boerse (DBOEY $7) to acquire NYX. Under the terms of the deal, NYX shareholders would receive $14.24 per share in cash, plus 0.4069 shares of NDAQ common stock and 0.1436 shares of ICE. NYX said it will carefully review the proposal, while DBOEY said it "continues to strongly believe" its proposed merger is the best possible combination for both shareholder groups. NDAQ and NYX traded higher, while ICE and DBOEY finished lower.

Elsewhere, General Motors Co. (GM $32) announced that it sold its remaining stake in Delphi Automotive, a parts supplier it spun off in 1999, for $3.8 billion, including fees, netting a gain of about $1.6 billion. GM had acquired the stake in 2009, when Delphi exited bankruptcy.

GM and the rest of the auto industry reported March US auto sales today, with GM posting an 11.4% y/y increase in sales of its core brands-Buick, GMC, Cadillac, and Chevrolet. Elsewhere, Ford Motor Co. (F $15) reported that its sales for the month rose 19.2%, outselling GM for only the second time since 1998, per Reuters. Additionally, sales increased 31% at Chrysler, 23% at Honda  (HMC $37) and 27% at Nissan (NSANY $18), aided by demand for smaller, more efficient cars and crossovers. The lone major producer to report a drop in sales was Toyota (TM $81), which said sales were down 5.7% from last year. Shares of GM, Ford and Toyota moved higher, while HMC and NSANY were lower.

March labor report reveals jobs grew over 200k, manufacturing remains near 7-year high

Nonfarm payrolls rose by 216,000 jobs in March, compared to the consensus estimate of economists surveyed by Bloomberg, which forecasted a 190,000 increase, and the initial 192,000 gain seen in February was revised to a growth of 194,000 jobs. Additionally, excluding government hiring and firing, private sector payrolls increased by 230,000 in March, versus the forecast of a gain of 206,000, after expanding by an upwardly revised 240,000-from an initially reported 222,000 gain-in February. The unemployment rate ticked lower again, declining from 8.9% to 8.8%, compared to expectations for the rate to remain unchanged. However, average hourly earnings were flat month-over-month (m/m), versus the Street's forecast of a 0.2% increase, along with average weekly hours which remained at an upwardly revised 34.3-from an initial report of 34.2-matching expectations.

The household survey, which is used to calculate the unemployment rate, showed that the labor force was little changed and the jobless rate has declined by 1.0 percentage point since November. The labor force is a figure that economists will monitor as it could see some gains-potentially putting upward pressure on the jobless rate-with improving employment conditions enticing more discouraged workers to rejoin the workforce. The number of discouraged workers-persons not looking for work because of the perception of no jobs being available-were also little changed at 921,000 in March. 

Meanwhile, the ISM Manufacturing Index came in slightly above expectations, dipping from 61.4 in February to 61.2 in March-remaining near the highest level since May 2004, a level not eclipsed since 1983. Economists expected a decline to 61.1. A reading above 50.0 depicts expansion and the index has posted twenty-straight months above that mark. Production rose from 66.3 to 69.0, but the Prices Paid Index rose from 82.0 to 85.0-the highest level since July 2008. Elsewhere, new orders declined but remained above 60, while inventories fell from 48.8 to 47.4. Finally, the employment component also deteriorated to 63.0 but was off of a 38-year high.

In other economic news, construction spending fell much more that expected in February, dropping 1.4% month-over-month (m/m), versus the 0.2% decline forecasted by economists, and following a decrease of 1.8% seen in January, which was downwardly revised from the 0.7% drop that was originally reported. Residential spending led the decline, falling 3.8%, while nonresidential spending dipped 0.2%.

Treasuries were modestly higher after paring early losses that initially followed the employment data. The yield on the 2-year note decreased 2 bps to 0.80%, the yield on the 10-year note lost 3 bps to 3.46%, while the 30-year bond yield was 2 bps lower at 4.50%.

Ireland reacts to yesterday's bank stress tests, multiple manufacturing reports released

European sentiment was boosted, as financials in Ireland surged, led by a 40% jump in shares of Bank of Ireland  (IRE $2) after it said it plans to cover its 5.2 billion euro ($7.3 billion) shortfall that was revealed in Thursday's stress test in the open markets and support from existing shareholders. The economic front was highlighted by a plethora of manufacturing reports that were mostly below economists expectations, including reports out of Italy, France, and the UK, which led to the composite euro-zone manufacturing report also falling short of forecasts, while activity in Germany-Europe’s largest economy-was unchanged. Elsewhere, the euro-zone unemployment rate was inline with expectations, ticking lower from an upwardly revised 10.0% to 9.9%.

In Asia/Pacific, the Bank of Japan (BoJ) released its 1Q Tankan Survey of Large Manufacturers, which rose from 5 in 4Q to 6, but it was noted that 72% of the responses to the survey were received by March 11, the day of the natural disaster that hit the nation. The BoJ will release a breakdown of pre-disaster and post-disaster responses on April 4, per Bloomberg. Elsewhere, there were some other key reads on manufacturing activity in the region, with two separate reports showing activity in China accelerated for the first time since November, but were slightly below economists' expectations. Meanwhile, India's manufacturing report showed activity was unchanged but remained at a level depicting expansion.

Resilient markets round out 1Q in grand fashion

The equity markets posted solid gains for the week despite continued concerns toward the tragedy in Japan, euro-area debt crisis, and the conflict in the Middle East, to help cap off the best 1Q for the Dow Jones Industrials and S&P 500 Index since 1998. Stocks found support on increasing optimism that the global economy will continue to prosper in the face of the aforementioned headwinds, aided by signs of improvement in the labor market-highlighted by Friday's slightly better-than-anticipated nonfarm payroll reportwhich also helped the markets stomach some unfavorable economic data. Housing data remained lackluster, with the S&P/Case-Shiller Home Price Index showing home prices continued to fall, and the Consumer Confidence Index showed sentiment is being hampered by inflationary pressures, though a larger-than-expected increase in consumer spending showed inflation concerns have yet to cause a tightening in their purse strings. Meanwhile, M&A news also continued to heat up to help buoy the markets, with the likes of eBay Inc. (EBAY $31), Dow member General Electric Co. (GE $20 1), and Valeant Pharmaceuticals International Inc. (VRX $53) all announcing multi-billion dollar deals, to compliment Friday's $11 billion counter-proposal for NYSE Euronext from NASDAQ and IntercontinentalExchange.

Central banks in focus for the week

Next week's economic events will be headlined by Thursday's monetary policy meetings from the European Central Bank (ECB) and the Bank of England (BoE) and Tuesday's release of the US Federal Reserve's minutes from its March 15 meeting. A rate-hike of 25 basis points to 1.25% by the ECB is widely expected but traders will likely pay close attention to Jean-Claude Trichet's press conference that will follow the announcement for any signs that the ECB will continue to raise rates or if this was a one-time hike. Meanwhile, the BoE is expected to leave its benchmark interest rate unchanged at 0.50%, with no press conference to follow.

Other reports on next week's economic calendar include: the ISM Non-Manufacturing Index, MBA Mortgage Applications, weekly initial jobless claims, consumer credit, and wholesale inventories. Reports from the international front include: euro-zone GDP, PPI and retail sales, German factory orders, industrial production, and trade balance, UK PPI and industrial production, Japanese central bank meeting and trade balance, and Australian trade balance and unemployment. Reports elsewhere in the Americas include: Canadian unemployment, housing starts, and PMI, as well as Mexican CPI and consumer confidence.