Us Stocks Lower Despite Upbeat Labor Data

Us Stocks Lower Despite Upbeat Labor Data

The Fed’s statement at the conclusion of April’s FOMC meeting yesterday acknowledged a slowdown in the US economy, but suggested the deceleration in output may just be a temporary blip.  

Us Stocks Lower Despite Upbeat Labor Data
Us Stocks Lower Despite Upbeat Labor Data

The statement said it was "in part reflecting transitory factors." A day later, the latest data appears to agree with that analysis.

Initial jobless claims shrunk by 34,000 last week to 262,000, falling to a fifteen-year low. This result was far better than expected, with the consensus estimate pointing to 288,000 before the release of the report. The four-week moving average also fell to its lowest in 15 years, dropping 1250 to 283,750, which is slightly below the month-ago comparison, and will boost expectations for the April employment situation report.

The employment cost index, which measures total employee compensation costs, rose 0.7% in the first quarter, following a 0.5% increase in Q4 2015. Year-on-year, wages & salaries are 2.6% higher and this will have the Fed on the alert for inflationary pressures down the line.

Currently, inflation is still low though. The PCE Price index rose 0.2% in March, in line with expectations, taking the annual change to just 0.3%, substantially below the Fed’s 2.0% target, though the core measure, which excludes the more volatile prices of food and energy, looks a little more lively at +1.4% year-on-year.

Consumer spending increased 0.4% in March, and was 3.0% higher than it was a year ago, which is an encouraging sign for how momentum may be bouncing back for the economy as a whole heading into the start of the second quarter, after GDP growth of just 0.2% in the first quarter.

Despite the encouraging labor data, US stocks opened lower on Thursday morning: the Dow Jones slid 51 points or 0.3% to 17,984 shortly after the opening, while the S&P 500 Index fell 0.23% to 2102.1.

In the FX market, the euro continued to rise on Thursday, following Wednesday’s sharp gain against the dollar. EUR/USD climbed 0.11% to 1.1141, having traded above the 1.1200 level earlier in the session. The euro was boosted by a modest improvement in eurozone inflation. The harmonized index of consumer prices (HICP) rose to an annual rate of 0.0%, moving the European union out of deflationary territory for the first time since last November. The outcome was in line with expectations and is hugely short of the ECB’s target rate, but there is a psychological lift to be had from shifting away from deflation, nonetheless.

The Loonie weakened against the US dollar, following the release of tame Canadian GDP data. Canadian GDP was unchanged  in February, marking the second consecutive month in which the economy has failed to expand, which reduces the year-over-year growth rate from 2.4% to 2.1%. The flat result was actually slightly better than expected, with -0.1% being the consensus estimate, and the sluggishness caused by weaker energy prices and unusually harsh winter weather should not be a huge surprise for the Bank of Canada. USD/CAD gained 0.44% to 1.2071.

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