Monday, April 2, 2012
Hardly anyone expects stocks to sustain the impressive momentum
from the first quarter as a new quarter gets under way today. But
few expected the market to do as good as it did in the first three
months of the year either, when a combination of improving domestic
economic data and fading European fears helped improve risk
appetites.
Driving the market's near-term trajectory will be a heavy
schedule of economic data in this holiday-shortened week, starting
with today's March Manufacturing ISM survey. The expectation is to
get a modest improvement in the ISM reading, even though the
regional manufacturing surveys, particularly the Chicago PMI, had
shown less resilience. We also have Purchasing Managers Index (PMI)
readings for March available for China and the Euro-zone. The
Euro-zone PMI reading, released by the financial information
company Markit, showed activity levels dropping deeper into
contractionary territory.
The official Chinese PMI reading, released over the weekend,
turned out to be better than expected at 53.1, up from February's
51.0 reading. The official Chinese PMI reading is contradictory of
the private-sector PMI reading from
HSBC Bank
(
HBC
) released last week showing the factory sector in contractionary
territory. Apparently the HSBC survey is more geared towards small
and medium-sized export-centric firms that are facing some
difficulties in accessing bank credit due to tight lending
standards, while the official PMI survey more closely tracks larger
firms. The disconnect between the two data points makes it
difficult to firm handle on the country's manufacturing sector. But
it nevertheless lowers the odds of a sharp drop in Chinese
output.
Beyond today's spotlight on the manufacturing sector, the focus
the rest of this week will be the labor market, with March's
non-farm payroll report coming out Friday morning. Since the market
will be closed that day in observance of Good Friday, we will have
to wait till Monday to get investors' reaction to the jobs report.
The expectation is for another 200K reading for total gains and a
bit higher reading for private-sector jobs. With weekly jobless
claims in the 350K vicinity, the March expectation seems
reasonable. But a number of analysts have been casting doubts over
the recent run of positive labor market readings on seasonality
grounds. Their contention is that this year's unusually mild winter
contributed to the job gains over the last three months. It will be
interesting to see if a positive March jobs reading will end that
debate.
In corporate news,
Avon Products
(
AVP
) is rejecting the roughly $10 billion buyout bid from
privately-held Coty Inc, claiming that the bid 'substantially
undervalues' the company. Shares of
Groupon
(
GRPN
) will also be in focus after the company's restatement of prior
results after the close on Friday. The issue raises questions about
the daily deals company's accounting practices and outlook.
Sheraz Mian
Director of Research
AVON PRODS INC (
AVP
): Free Stock Analysis Report
GROUPON INC (
GRPN
): Free Stock Analysis Report
HSBC HOLDINGS (
HBC
): Free Stock Analysis Report
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