The jobs report takes a bit of heat off of Thursday’s selloff, which was predicated in part on some nonsense out of Europe and more importantly some kind of growing consensus that the economy is getting hot enough that it might force the Federal Reserve to start raising rates a bit earlier than expected, given a sharp and unexpected rise in the employment cost index on Thursday. And while it’s fair to suggest the stock market has gotten a bit ahead of itself when the Fed is rapidly moving toward the end of its stimulus policies, it’s also possible that stocks have gotten ahead of themselves for a far more prosaic reason – the economy isn’t strong enough to support the kind of valuations we’re seeing in equities right now.
from Data Dive:
Volatility in financial markets is low, and that concerns New York Fed president William Dudley. Reuters reported he said last week, "I am nervous that people are taking too much comfort in this low-volatility period and as a consequence of that, taking bigger risks."
Investors will get a look at the Federal Reserve’s thinking later on Wednesday in an otherwise quiet week when the Fed releases minutes from its April get-together. There may be a bit in the way of more up-to-date thinking in some of the scheduled Fed speeches, notably Bill Dudley of the New York Fed, along with Fed Chair Janet Yellen later in the week.
The S&P 500 heads into the last session of the week less than 1 percent from an all-time closing high, corporate credit spreads have generally continued to shrink or at least stay stable, and overall investors remain enamored of riskier assets even though the momentum crowd has had its head handed to it for the better part of two months now.
It took the market a little while to get the full measure of the day’s biggest economic news. (And no, it wasn’t the shout-fest on CNBC that seemed to have resulted in the delaying of an IPO and one of the first real reckonings among many people about the ramifications of high-frequency trading.)
Is King Digital Entertainment the next Zynga or not? The markets may not find out with today’s first day of trading in the London-based company, but it will provide a bit more context for those eager to build some kind of “time wasting” index or something like that. The King IPO has other gamemaker companies waiting in the wings at a time when there’s been a high volume of IPOs this year coming from unprofitable companies – according to Renaissance Capital, the IPO research firm, 66 percent of this year’s 53 IPOs were unprofitable names, though Kathleen Smith, principal at the firm, points out that if you clear out the biotech names, just 37 percent are those that do not yet have earnings. (Whether this is a good argument or not is another matter — witness the trading lately in the biotechnology shares overall, which have been pummeled in the last few weeks.)
The ructions in China have had an interesting effect on commodities prices – good for gold, crappy for copper. And more developments in this area should be expected as the market deals with growing weakness and the threat of a deflating credit bubble coming from the massive lending to various sectors in the world’s second-largest economy. Copper has been rather weak of late, but the broader CRB commodities index is actually much higher on the year. This is the biggest divergence since the eurozone debt crisis in 2011, points out Ashraf Laidi, the chief global strategist at City Index in London.