Digging Deeper


The markets continued to drag themselves up off the mat this week as it logged its third consecutive week of gains. What got us there?

US Data
The week did not have a promising start, as pending home sales for January contracted 2.5% in January[1]. It did not seem to cause much concern given the season and the recent strength in the real estate market.

Oil markets responded favorably to reports in the Wall Street Journal that US shale production should decrease in 2016 5% to 10%. WTI Crude closed the week at $35.92, only $1.21[2] from its year end value, however, well below values from a year ago.

ISM Manufacturing data impressed, moving from 48.2 in January to 49.5 in February. The rating was more than expected, but still fell short of reaching 50, the line between contraction and expansion.

And then there was Friday! The Jobs report came with much attention. Everyone is trying to determine what action, if any, the Federal Reserve Board (FRB) will take in their March meeting. Being decidedly dovish when it comes to jobs, makes this report a focal point. Current investor sentiment has the FRB raising rates once in the next 12 months. If that proves to be the case, then this meeting does not appear to be a likely suspect for that rate hike.

The top line data for the jobs report was boring as the rate remained unchanged from last month. When you dig a little deeper the report was a mixed bag. The factor that got a great deal of attention was the falling wage rate, as it dropped 0.1%. What I thought was a very telling detail in the report was the fact that the participation rate actually expanded to 62.9% and we were able to maintain a 4.9% rate. Typically, when participation is up it occurs because of improved job options, but those new to the market are still unemployed and searching. This causes the overall rate to increase in the short term. In addition to the rise in the participation rate, the job adds in February exceeded expectations as well. Nonfarm payrolls were expected to increase by 190K jobs, but actually expanded by 242K[3].

International Data
China loosened reserve requirements again in a continued effort to free up capital for investment and lending. Caixin Manufacturing has continued to flounder, falling to 48 from 48.4 in January.

Brazil moved one step closer to putting the embezzlement scandal of the state run Petrobras behind them. The former president of Brazil was detained for questions in relation to the scandal.

European consumer prices moved into negative territory this month. Core prices actually expanded however, the volatility in fuel prices pushed headline prices into the negative.

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[1] www.investing.com – economic calendar

[2] www.jpmorganfunds.com – weekly market recap

[3] www.investing.com – economic calendar