Stocks finished in mostly negative territory on Wednesday following the release of a disappointing jobs report from ADP. The three major indexes opened lower after ADP’s monthly payroll report, released before the opening bell, came in much weaker than expected; stock prices meandered higher the rest of the day, but only the NASDAQ managed to close ahead for the day, gaining 0.3%. The Dow slipped 0.1% from Tuesday’s four-year high, and the S&P 500 slid 0.3%. Bond prices were modestly higher on the day, with the 30-year bond rising about ¼ point in price to yield 3.12%, down three basis points; the 10-year Treasury note’s yield dipped one basis point to 1.93%. Energy prices were lower on the day, as were most commodities prices.
Wednesday’s ADP report certainly isn’t a good omen for Friday’s April unemployment and payrolls reports from the Labor Department. ADP said private payrolls rose a weak 119,000 in April, down sharply from the revised 201,000 figure for March and well below the Street consensus forecast, which was for an increase of 183,000. April’s increase was the smallest in seven months. March’s figure was also scaled down from an original 209,000. The ADP numbers have a spotty record of “predicting” the broader monthly payroll numbers from Labor. Two of the three factors we like to use as guides to the jobs report – the employment component of the ISM purchasing managers’ index and weekly jobless claims – are pointing in opposite directions for April; so a lot is riding on Thursday’s ISM survey for non-manufacturing, in particular its employment index.
European stocks fell and German bond prices soared in response to a barrage of negative economic reports on eurozone jobs and manufacturing. The European Union said the unemployment rate in the euro area rose to 10.9% in March from 10.8% in February, putting it at its highest level in 15 years. Separately, Germany’s Federal Labor Agency said the number of unemployed Germans unexpectedly rose by 19,000 in April, in sharp contrast to the decline of 10,000 that economists had been expecting. Germany’s unemployment rate, in contrast to what one sees in Spain and in other weak Euro-economies, remained at 6.8%, close to the lowest level in some 20 years. Meanwhile, the manufacturing PMI index for the eurozone fell to a nearly three-year low of 45.9, down from 47.7 in March and slightly below the earlier flash estimate of 46.0. Similarly, the PMI index for Germany fell to 46.2 in April from 48.4 in March, the second month in a row the index was under 50, the dividing line between growth and contraction.
The European reports sent interest rates on German government bonds to their lowest levels in recent history. The 30-year bund jumped 1.2 points in price to yield 2.33%, down five basis points on the day and roughly 80 bps below the rate on comparable U.S. Treasury bonds. European stocks were down on the day, with the German DAX index down 0.8% and the Stoxx Europe 600 off 0.4%. Italian and Spanish stock markets plunged 2.6%, while the FTSE 100 index of London-traded stocks fell nearly 1%. The euro dropped 0.6% against the dollar to $1.3159 late Wednesday.
Reports/dates/facts/links worth paying attention to over the next week:
- May 3: Unemployment claims; productivity for Q1; ISM non-manufacturing survey for April.
- May 4: Employment situation for April; PMIs (service sector) for Italy, France and Germany.
Copyright © 2012 by Wright Investors’ Service, Inc. The views expressed in this blog reflect those of Wright Investors’ Service, Inc. and are subject to change. Statements and opinions therein are based on sources of information believed to be accurate and reliable, but Wright Investors’ Service, Inc. makes no representations or guarantees as to the accuracy or completeness thereof. These views should not be relied upon as investment advice.