Stock markets likely to turn to U.S. jobs data on Friday for direction

TORONTO – Another round of uncertainty is likely to hit traders this week as they scour earnings and data to glean hints of where the U.S. economy is headed — a search that will keep them busy all the way to new jobs data on Friday.

The highly-anticipated numbers have been on the radar of economists for weeks and are partly to blame for a relative pause on market direction, as traders wait on the sidelines until they get a clearer sense of the U.S. economic situation.

The TSX ended last week up 0.75 per cent, while the Dow was up 1.5 per cent, as earnings season gave investors some reason to cheer while oil prices also strengthened to a four-week high.

On Friday, investors took in some mildly disappointing economic data from south of the border.

The U.S. Commerce Department reported that real gross domestic product grew at a 2.2 per cent annualized rate in the first three months of 2012, which is off from a three per cent increase in the fourth quarter of 2011. The data came in below the 2.7 per cent growth rate that economists had predicted.

Data on the U.S. employment situation is expected to offer the greatest insight into whether investors should brace themselves for a spring pullback in the markets.

“The payrolls data will set the tone for the next several weeks,” CIBC chief economist Avery Shenfeld said in a note.

“Jobless claims data hint at a result that is neither as bad as March nor as strong as the two months before that, but we will also look to any revisions to that trouble March figure.”

The U.S. Labour Department’s data for March disappointed with employers adding only 120,000 jobs in March, half the average pace in the preceding three months.

CIBC World Markets is targeting 160,000 job adds for April, while it said the consensus is for 165,000.

U.S. non-farm payrolls are due Friday, with consensus expectations for an increase of 168,000 jobs, according to estimates from BMO Capital Markets.

“The report should reinforce the view that companies remain cautious about hiring, though less so than last summer,” said BMO Capital Markets deputy chief economist Doug Porter.

Canadian earnings season is also underway and numerous major companies are slated to report this week. Included on the list are oil heavyweights Suncor Energy (TSX:SU) and Talisman Energy (TSX:TLM), as well as supermarket giant Loblaw (TSX:L) and airline carrier WestJet Airlines (TSX:WJA).

In addition to the spate of earnings and U.S. data, markets will also have to deal with a persistent concern about the state of the eurozone economies.

“I think the market’s (saying) that they’re much more concerned about other economies outside the U.S.,” said Gareth Watson, vice-president at Richardson GMP Ltd. in an interview.

“Yes, the U.S. is recovering slowly, but it’s still recovering, so it’s still a positive takeaway relative to other parts of the world.”

Spain’s economic problems have become the epicentre of Europe’s debt crisis in recent weeks as investors worry over its ability to push through austerity and reforms at a time of recession and mass unemployment.

Last week, earnings from U.S. companies with a presence in Europe only added to already troubling data.

Ford Motor Co. said its net income fell by 45 per cent in the first quarter as European sales plummeted and the company paid higher taxes. And coffee company Starbucks also reported a slowdown of sales in Europe.

In Canada, real GDP numbers for February are scheduled for Monday, and expectations are for a rise of 0.2 per cent.

“Indicators for February have been all over the map, so we suspect overall GDP will land close to the middle ground with a mild 0.1 per cent increase,” said Porter.

Other data for the U.S. includes ISM manufacturing report on Tuesday, and non-manufacturing on Thursday.

The Canadian dollar will also be in focus after rising 1.19 cents last week to close at 101.94 on Friday.