ISM Non-Manufacturing (APR) (14:00 GMT)
Nonfarm Payrolls (APR) (Friday 12:30 GMT)
How Will The Markets React?
After a brief lull in fundamental action from the US economic calendar, event risk will quickly return with Thursdays ISM non-manufacturing report. The proprietary gauge of service sector activity is expected to improve for the first time in three months and in doing so pull the indicator off of four-year lows. Considering the tepid pace of growth in the first quarter and the steady trend of declines from other areas of the economy, a rebound in the large service sector is needed to revive confidence in the US and its investment vehicles. Looking for clues to support the expected recovery, we only need to go as far as yesterdays factory report. Though there are big structural and size differences between the two gauges, they follow the same underlying economic trends. As an overall guide, the manufacturing report marked a big rebound in April with a 54.7 print that was the fastest pace of expansion in a year. For better guidance, the components reveal where most of the improvements will likely come from. Breaking Tuesdays headline number into its individual sub-gauges, it is easy to see that many of the bigger improvements came from the same areas that the service sector has struggled with in recent months. Strong performance from domestic and foreign orders as well as employment numbers read could easily be repeated in the non-manufacturing gauge. Alternatively, other indicators keep the air of doubt in place. Key among them is consumer confidence which slipped to a 14-month low in April as housing woes spread and rising gasoline prices dampens discretionary spending. However the ISM number hits the wires, its influence on the markets may ultimately be hampered by the payrolls report due the following day. The Labor Departments NFP print is a monthly favorite for traders and its presence will not go unnoticed. At the same time, the ISMs employment component will certainly contribute to the ever-evolving NFP outlook.
Bonds - Treasury 10-Year Note Futures
The benchmark T-note continues to wedge itself into conflicting technical formations, and it will obviously need to decide on an ultimate direction before too long. This verdict on price action may very well be reconciled tomorrow with the Institute of Supply Managers service sector activity survey. On Tuesday, a strong reading in the groups manufacturing report steered the note lower. Tomorrows indicator could very well be more influential, since the service-based companies account for a bulk of the economy. Through technicals, a rising trend channel in the active T-note futures contract places the burden of a break on resistance at 108-15, while a move lower would actually come on support around 107-24. Logically though, a true move will be reserved for Fridays employment data.
FX - USD/CHF
The US dollar will be on edge over the next two days, as ISM Non-Manufacturing will be released Thursday followed by Non-Farm Payrolls on Friday - both of which are highly market moving indicators. Looking at Thursday, markets will not only pay heed to the headline service sector report, but also the employment and price components. Should all of the figures gain as expected, the US dollar could rally as prospects for both the services sector and labor market would mount, and increasing inflation concerns could stoke speculation that the Federal Reserve will continue to remain slightly hawkish. As a result, USDCHF could break above the 50 day SMA to test the resistance trendline near 1.2200. On the other hand, should the figures come in cooler than forecasted, USDCHF could start to ease towards support in the 1.2000-1.2100 region ahead of the highly volatile NFP report.
Equities - S&P 500 Index
Stocks in the US rallied, sending the S&P 500 Index to a six-year high of 1,495.92 on better-than-expected earnings from MasterCard Inc. and Time Warner Inc. Meanwhile, the Dow Jones Industrial Average gained 0.6 percent, to a record 13,211.88 as a surprisingly strong factory orders report lifted Honeywell International Inc. shares. MasterCard jumped 10 percent to $126.35 after net income rose to $1.57 a share as customers increased use of credit and debit cards. Meanwhile, Time Warner gained 35 cents to $20.94 as the company posted buoyant first-quarter earnings on the back of surging cable-television earnings.
The S&P 500 and Dow will enter risky territory over the next few days, as ISM Non-Manufacturing will be released Thursday followed by Non-Farm Payrolls on Friday - both of which are highly market moving indicators. Focusing on Thursday, markets will not only look at the headline service sector report, but also the employment and price components. Should the headline and employment index gain as expected, US stock indices could gain as prospects for both the services sector and labor market would mount. On the other hand, any weakness in the figures or a jump in prices paid could prevent the S&P 500 from breaching the impervious 1,500.00 level and may lead the Dow lower, as traders would ramp up expectations for a hawkish Fed statement next week.