Very light volumes made for turbulent trading this week, although US indices essentially ground sideways ahead of the highly anticipated March employment reports due on Friday. US economic data supported equities: personal spending data out on Monday showed that consumer expenditures rose incrementally for the fifth month in a row in February, the March consumer confidence reading beat expectations on Tuesday (but missed the whisper number) and the March ISM Manufacturing Index on Friday was stronger than any time since July 2004. Front-month crude responded well to the good news for the US economy, rising from around $80 to around the $85 handle at the close on Thursday, for its best levels since the economic crisis began in September, 2008. Copper notched a 20 week high as the global economic recovery rolls on. The ADP Employment report was a curious contrast to consensus thinking about Friday's jobs reports. Estimates were for a 40K gain in the March report, whereas the headline number came in at -23K. Note that an ADP executive warned that since employment as measured by the ADP Report was not restrained in February by weather issues, their March report did not incorporate a weather-related rebound that could be present in Friday's Labor Department data. Nevertheless, the Street has reexamined some of its earlier forecasts for a gang-busters positive reading in the March payrolls data. Goldman Sachs revised its nonfarm estimates lower to +200K from +275K, citing projections for a 50K smaller contribution from temporary census hires than the +125K previously expected. Goldman Sachs Chief US Economist Hatzius questioned the growing presumption that private-sector firms have turned the corner to net hiring. For the week stocks posted modest gains: the DJIA added 0.7%, the Nasdaq rose 0.3%, and the S&P500 climbed 1.0%.

In equity news, the Treasury confirmed plans early on this week to sell 7.7B shares of its stake in Citi in 2010. The Treasury reiterated that the sales would be made gradually in an orderly fashion to minimize their impact on trading. Analysts said expectations for the government sales are already well baked into current valuation. Citi also spun off life insurance unit Primerica on Friday in a IPO that closed 31% above its pricing. The bank tried to sell Primerica last year, but failed to find a buyer willing to pay a high enough price.

Tech was much in the headlines, with the entire world waiting eagerly for Apple to begin selling its iPad on Saturday. There was news that Apple would also be releasing a CDMA-based iPhone this summer, which would presumably be sold by Verizon (at the expense of AT&T, with its well know 3G network troubles). Research In Motion met earnings expectations in its Q4 report and guided a bit above par for the next quarter. Micron beat top- and bottom line forecasts in its Q2 report, although the excellent performance was in part due to the adoption of new accounting standards.

Iron ore contract negotiations around the world were a heavy burden for various world markets this week. Two of the three major suppliers signed a new round of contracts this week that broke a four-decade tradition of annual benchmarking. In the new contracts, which take force in April, pricing will be set quarterly, meaning prices will likely become more volatile and fluctuate in line with the spot iron ore prices. Any upward movement in ore prices will only add to the inflation fears washing over markets.

There has been a flurry of smaller M&A deals this week, with none of the megadeals seen over the last month. Packaging manufacturer BWAY Holding is being taken out by private equity firm Madison Dearborn Partners for $915M. Avnet announced plans to acquire computer component manufacturer Bell Microproducts for nearly $600M. Defense-oriented electronics manufacturer White Electronic Designs is being acquired by Microsemi for $7/share in cash, for a total deal worth $100M. The biggest deal of the week was a private equity offer for educational software name Skillsoft, worth a total of $1.2B.

Bond traders came into the week to find Treasury markets offering some of the highest rates seen since the onset of the financial crisis. Although prices failed to move below last week's lows along most of the curve, and markets appear to be consolidating near these lows. The US 10-year yield remains above 3.85% while the long bond hovers near 4.75% ahead of Friday's all important non-farm payroll figures. Prices stabilized and yields dipped mid-week after ADP employment figures disappointed. Apart from the fallout from tomorrow's jobs data, next week traders will have to grapple with $71B in Treasury coupon supply along with $8B in 10-year TIPS.

The trepidation felt recently in government fixed income markets has been completely absent in corporate bond markets. March saw more than $30B in new high-yield debt come to market, which surpassed the previous month's record of junk bond issuance from back in late 2006. The month capped one of the strongest quarters on record for high-yield debt in particular, and overall corporate issuance in general.

With a Euro Zone standby rescue package in the wings, Greece's PDMA debt agency issued bonds, pricing a 7-year issue at 310bps over mid swaps. Secondary trading in the issue will be a key gauge of sentiment going forward and this week failed to inspire much confidence. The spread between the Greek/German 10-year remained near its widest levels of the week, hovering around 340bps heading into the long holiday weekend. The PDMA also indicated they plan to issue dollar denominated bonds in late April or early May.

The dollar found itself on the defensive against European currencies for much of the week, softness blamed on month- and quarter-end stop-loss orders. Several factors favored technical retracement in EUR/USD pair, which has seen an 800 pip Q1 quarter sell-off. Traders cited passive month/quarter end portfolio rebalancing, higher March inflation data out of German states and an unexpected decline in Germany's March jobless data. EUR/USD tested back above the 1.3580 holding right at 1 week highs heading into the March jobs data. EUR/CHF saw intervention Thursday, after the cross moved out to all-time lows in the European session. Around midday in New York, the cross moved rapidly from below1.4150 to above 1.4400.

Technical and interest rate factors continue to provide a tailwind for USD/JPY as the pair approaches the 94 handle for the first time since August 2009. The end of the Japanese fiscal year has also generated some optimism for further yen weakness as repatriation flows end with the start of a new fiscal year in April. The sentiment was led by chatter that the Japan Post Bank would be buying foreign bonds instead of JGBs in the new year. However, one astute European dealer noted that history might be against that trend. With the exception of 2007, April trading for USD/JPY pair has exhibited a reversal in the March price action (up or down) moves in every year since 2000.

There was some speculation that China was considering expanding the daily trading band for the yuan exchange rate, but the PBoC's Q1 monetary report made no mention of the yuan. Diverging opinions on the yuan continue to take shape in and outside of China. An unusually public dispute on the topic between the PBoC and the Chinese Commerce Ministry illustrated that point.

Trade The News Staff
Trade The News, Inc.

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