Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
As expected, Europe delivered some poor PMI (“Purchasing Managers Index”) figures, and the U.S. followed up with some weaker than expected payroll data out of ADP. I don’t think any of this is unexpected as weekly claims have spiked back in the 380Ks range the past three weeks, and we all know European governments are not following the U.S. plan of 8-10% annual deficits to support their economies – hence are stuck relying mostly on the private sector. Whatever your political persuasion there is no arguing that massive government spending in the near term creates a large artificial boost to economic data. While futures are weak they are not horrible as people are coming around to the fact that Europe is a sinkhole, and the U.S. benefited from a very warm winter and some “payback” is now required. The question is what happens in the June-July time frame when that payback should be over with.
In Europe, German PMI is the main focus and unfortunately the main cog in the engine there is showing increased weakness – today’s PMI was a 33 month low at 46.2 vs previous month 48.4. As a whole, manufacturing PMI slumped to 45.9 from 47.7 in March. This is the lowest reading since June 2009. Unemployment in the euro zone ticked up from 10.8% to 10.9%.
As for ADP private sector employment – the gain was +119K. (Expectations were for +170K) All of this was in services with drops of 4K in goods producing and 5K manufacturing; the former would seem to be a give back due to weather (i.e. lots of construction jobs in the north were “pulled in” to earlier months).
For markets, S&P levels of 1393 – and below that roughly 1385 are important to hold. At current levels futures don’t seem inclined to even test the former level. Data flow continues heavy with weekly jobless claims and ISM Non Manufacturing tomorrow and the monthly employment data Friday. Expectations still seem high at 175,000 for the payroll number, but I’d assume some economists begin cutting that number a bit today as they look to ADP.
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