Market Perspective for April 6, 2015

Traders are focused on the weak March jobs report as trading gets underway this week. With the markets being closed for Good Friday and some foreign markets closed for Easter Monday and a Chinese traditional holiday. Earnings season will start later this week, but important reports from large banks won’t come until next week.

With little news on tap, investors will focus on individual markets. Small- and mid-caps are providing the strongest signal for the bulls as both hit a new high in late March. Small-caps tend to lead bull markets, which indicates the broader market is likely to move higher. Some sectors trading at or near new highs include retailing and homebuilders. The bears are focused on markets such as energy and transportation. Oil prices climbed above $50 on Monday, but the Dow Jones Transportation Index is trading below its 200-day moving average. The last time the transports behaved similarly was in 2012, when they spent almost the entire year moving sideways before breaking out in 2013.

In Europe, Greece could again become the center of attention with the repayment of a $500 million IMF loan due on Thursday. As long as a nation stays on good terms with the IMF, credit will flow, but if the IMF pulls out, the credit markets could close their doors to the nation. Today, the Greeks pledged to pay that IMF loan, but over the weekend, there was talk of a snap election in the country as it struggles to repay debt.

Right now, the Syriza-led government is trapped between the Scylla of European creditors and the Charybdis of Greek voters. European governments are willing to work with Greece, but on the other side are the conflicting demands of Greek voters, who both oppose reform and wish to remain in the euro. In order to stay in the Eurozone, Greece will have to make the type of deep structural reforms it has avoided for years.

Even with the troubles in Greece, the euro continues to rebound as the U.S. dollar corrects. The March jobs report also weakened the dollar because investors pushed back their rate hike expectations. Economists at Goldman Sachs were looking for a September rate hike before Friday’s report, but now think it could, and should, be moved to December.  Any delay in rate hikes will take some air out of the dollar bull market, but won’t reverse the major trend. As long as U.S. oil production is high and emerging market U.S. dollar debt needs to be repaid, fundamental support for the U.S. dollar will remain in place.

This will be a very light week for economic data. On Wednesday, the minutes of the most recent Federal Open Market Committee meeting will come out. Wholesale inventories for February will be released on Thursday. Of all the data, this data point is the most likely to impact the current GDP forecast.

Earnings season kicks off this week with Alcoa (AA). Along with steelmakers, shares of Alcoa have been hit hard in 2015 as the slowdown in the Chinese economy leads to falling demand. This is also leading to an increase in Chinese exports as producers dump their inventory onto the global market. Retail earnings round out the rest of reporting this week including Bed Bath & Beyond (BBBY), Pier 1 Imports (PIR), Rite Aid (RAD) and Walgreens (WAG).

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