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Hope and Challenges Await Q2 Trading

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Monday, April 3rd, 2023

We enter a new quarter of trading with something of a bounce in our step: Q1 closed in the green across all major indices, from +0.86% on the Dow to +20.4% on the Nasdaq. Considering where a plurality of analysts were at the start of the year, this now presents as a certain accomplishment; how many market forecasters were predicting we’d be slogging through a full-blown recession by now?

There is a fly in the ointment this morning, however: OPEC+ has arranged a major oil output reduction, to the tune of -1.66 million barrels per day (bpd) — 500K of which would come from Saudi Arabia alone. This goes against what the U.S. had been negotiating toward over the past year or so. Even Saudis’ own outlook had been forecasting accelerated production just a couple weeks ago. Now we see oil prices shifting starkly higher — from crude oil per barrel on the WTI lagging in the mid-$60s to over $80 per barrel this morning. We’ll call it an inauspicious start to a new quarter.

This week is a big one for jobs totals: JOLTS (Job Openings and Labor Turnover Survey) tomorrow, ADP private-sector payrolls Wednesday, Weekly Jobless Claims Thursday and the major Employment Situation report on Friday. Despite a notable destabilization in the regional banking industry last month, analysts do not expect a cataclysmic decline in monthly jobs totals: 235K is the consensus number now, following 311K last week and an 11-month trailing average 357K new jobs filled per month. One day we’ll see the bottom fall out here, but we do not see it happening for March.

If there’s something to look forward to in the new quarter — aside from Q1 earnings, which has not registered as much downward guidance as earlier thought (though that may yet be on the way) — it is the re-emergence of China’s economy, at least in its tourist and gaming zone: the Macau region. Business is booming on the Cotai Strip, and that may mean good things for companies heavily reliant on its Chinese customer base, such as Nike (NKE - Free Report) , Starbucks (SBUX - Free Report) and Yum! China (YUMC - Free Report) .

After today’s open, we’ll see new Manufacturing PMI data from both S&P and ISM, where 49.3 and 47.3% headlines are expected, respectively. These would still both be beneath the 50 demarcation point that separates growth from loss, but narrowing the gap meaningfully. We’ll also get Construction Spending numbers for February this morning after the bell, expected to come in at 0.0% from -0.1% reported a month ago.

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