Morning Minutes 4/3/2020

Morning Minutes

Nonfarm Payrolls, Service PMI Reports and Crude Oil Rebound In Focus

April 3, 2020

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Market Commentary By:
Colin Cieszynski, CFA, CMT
Chief Market Strategist
ccieszynski@siawm.com
+1 (647) 282-4428

US nonfarm payrolls are out this morning with a decline of 701K jobs in March, which was worse than the 100K loss the street was guessing. This falls in between the 27K drop in ADP payrolls reported earlier this week and the 9.9 million US jobless claims reported in the last two weeks. As the survey period for this month was ending just as the COVID-19 related layoffs were ramping up, next month’s report may provide a clearer picture.

Service PMI reports from around the world have been rolling out overnight, many of which have gone off a cliff, showing that the impact of the coronavirus shutdowns has hit the service sector particularly hard. Examples of big drops overseas include Japan (33.8 vs previous 46.8), Italy (17.4 vs previous 52.1), and Spain (23.0 vs previous 52.1). On the other hand the privately-collected China Caixin Service PMI rebounded (43.0 vs previous 26.5) but did not regain 50. US ISM Non-Manufacturing PMI is due at 10:00 am EDT today, the street is expecting a 40.5 reading but it’s anybody’s guess really.

Stock markets around the world are down moderately on this news which suggests that expectations of a dismal economy have already been priced in by the market plunges of the last six weeks. In the US, Dow futures are down about 100 points or 0.5%, giving back some of yesterday’s 2.2%, 469-point gain. European markets are mixed with the Dax up marginally, the FTSE down 1.2% and the FTSE MIB down 1.25%. The main Asia-Pacific indices were pretty much flat overnight.

Crude oil is up again this morning with WTI rallying 6.8% toward $27.00/bbl and Brent soaring 12.75%. Gains have been propelled by reports that an OPEC+ conference call to discuss supply cuts has been scheduled for Monday. Alberta has suggested it may also join in production cuts, the US has not but reports suggest sanctions relief may be offered to Russia to get them to sign on. This afternoon’s US Baker Hughes weekly drill rig count may give an idea of what US companies are up to. Active rigs fell from 682 on March 6 to 624 last week.

While a supply deal could ease some of the stress in the energy market, at this point the dropoff in demand remains the larger issue. Be careful reading too much into big percentage rebounds off of low levels. Even if WTI were to rally 50% from $20.00 to $30.00/bbl it would still be down about 50% year to date.

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