It’s that time of year again, full of cherry blossoms, baseball and first quarter earnings reports. Earnings season has not started just yet, but first quarter books are closed. Today marks the first day of the second quarter, and just as the S&P 500 (NYSE: VOO) strikes a new record, economic data may test its resolve.
Opening DayOverseas markets produced some important information Monday. Japan’s tankan index improved to minus 8 for the March quarter, up from minus 12 in Q4 2012. Unfortunately, the figure is still reflecting pessimism among manufacturers in Japan and the result was short of economist expectations as well. In China, authorities in Beijing and Shanghai put new restrictions in place to cool fervor for housing. For instance, in Beijing, the minimum down payment for a second home purchase has been raised, and in both cities, a 20% capital gains tax has been imposed on home sales. Also, in Beijing, single Chinese citizens can only own one residential property now.
Some markets, including in Germany and Italy, will not even open for Easter Monday. In the U.S., the first week of the month and the second quarter kicks off with a heavy economic data load. Three major data points find the morning market, with the PMI Manufacturing Report, ISM Manufacturing Index and Construction Spending data all due.
The Markit Economics PMI Manufacturing Index leads off with its 8:58 AM ET reporting. Last month, the data for February showed the index at 54.3 at its final reading. It slipped significantly through the month though, dropping from its initial “Flash” reading of 55.2. In January, the index closed out at 55.8. All indications are that manufacturing activity tailed off. There’s no consensus estimate for March, but these indications are not good.
The Institute for Supply Management (ISM) Manufacturing Index will follow at 10:00 AM ET. This widely followed manufacturing measure is seen by economists slipping slightly in March to 54.0, down from 54.2 in February. The range of economists’ views extends from 51.6 to 55.0, so it’s leaning to the downside. If we get two poor manufacturing data points, stocks could slip Monday. Manufacturing has been a linchpin of this economy, and if it is pulled out from under us, it will join recently softer housing data in weakening support for stocks.
Construction Spending data is due at 10:00 as well. After a 2.1% spending dip in January, economists expect February spending rose 1.1%. Between the three of these data points, the market should have filled its pallet for one day.
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