Weak economic data on the heels of lower Asian and European markets are continuing to push stocks lower this morning, as the S&P 500 faces the 10th day of its current mini correction from the all-time closing high of 1,669 last month. However, losses are being somewhat mitigated as the Fed is getting nothing in the data suggesting they should taper sooner vs. later. With treasuries also rising, the bond market appears to be pricing in a lower probability that the Fed scales back its stimulus soon.
Investors seem set on tolerating the current mini-correction/volatility until the all-important nonfarm payrolls report on Friday, which could push the Fed to clarify its QE intentions. In the meantime, traders will watch for clues on economic conditions that could affect FOMC decisions on monetary policy in the Fed’s Beige Book, out today at 2 p.m. ET.
As of 10:15AM, the S&P 500 is off -0.6% to 1,621, currently testing the lows of the last two days.
Main Factors Driving Early Trade:
– Weak Jobs Data – Private-sector job creation was weaker than expected in May, setting the stage for a possibly weak nonfarm payrolls report on Friday, when the Labor Department had been expected to show 169,000 new jobs. ADP and Moody’s Analytics reported just 135,000 new positions for the month, below expectations of 165,000. Services were responsible for all the new jobs, adding 138,000, while the goods-producing sector lost 3,000 positions. Adding to concerns, the BLS reported the biggest labor cost drop in four years and the biggest collapse in hourly compensation ever, suggesting that the last NFP report’s quantity gains in jobs continues to be offset by quality declines in actual worker pay.
– Mortgage Applications Plummet As Interest Rates Rise – Interest rates on U.S. mortgages continued to surge last week, rising above 4% for the first time in a year and driving down demand from homeowners to refinance. Fixed 30-year mortgage rates climbed 17 basis points to average 4.07% in the week ended May 31. Rates have risen by 48 basis points in the last four weeks, with the most recent upswing driven by nervousness that the Federal Reserve could slow its economic stimulus efforts sooner than had been anticipated.
– Japanese Volatility Continues – Asian markets were lower in overnight trading with the Nikkei falling 3.8% as markets were disappointed by new measures revealed under Abenomics. Japanese prime minister Shinzo Abe unveiled the “third arrow” of “Abenomics” — the economic stimulus program intended to reflate the economy. A blueprint showed that some of these measures include, achieving 2% real GDP growth annually over the next 10 years, a cut on corporate taxes for capital investment, and R&D, and restarting nuclear power plants.
– Weak European Economic Data – Eurozone Q1 GDP fell 0.2% quarter-over-quarter, and 1.1% on the year. Meanwhile, retail sales unexpectedly fell 0.5% on the month, and 1.1% on the year.