Today was very busy, with lots of economic data releases, including the FOMC statement. European and Chinese markets were closed for the May Day holiday. In the morning, the ADP survey of private payrolls saw an increase of 119,000 from last month, less than the 150,000 expected. The prior month was also revised down to 131,000 from 158,000. This low reading makes Friday's non-farm payrolls report estimate of 145,000 an optimistic goal, and a miss to the downside should be expected.
The national ISM manufacturing survey for April showed a slight decline to 50.7 from last month's 51.3, above the 50.5 consensus. On the negative side, the survey showed declining employment, but on the positive side, there was new order and production growth. On the report after the call, ISM Chairman Nieves mentioned that declining prices were causing companies to put orders on hold, which is a longer term positive for the economy. March construction spending showed a surprising drop to -1.7% from 1.5% the month prior, well below the 0.6% estimate.
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The FOMC statement in the afternoon caused a volatile reaction. The statement from the committee had three main highlights. In the near term, the FOMC is concerned over falling inflation expectations; it acknowledged that growth has slowed; and it stated that fiscal policy is restraining growth. The dovishness of the statement reflects the same tone that speeches made by Fed officials over the past month have had. Bonds sold off in response to the potential increase of inflation while the S&P 500 lost about 5 points from its pre-FOMC statement levels.
Facebook (FB) reported earnings after the close, missing EPS slightly at $0.12 vs. estimates of $0.13 and beating revenue expectations at $1.16 billion vs. estimates of $1.14 billion. Mobile revenues accounted for 30% of total advertising revenues, but only 23% of sequential growth, which was below the general estimates of 26%.
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Tomorrow's Financial Outlook
Tomorrow, there will be relatively little US economic data released as the majority of the fireworks will be overseas. Weekly jobless claims will be reported in the morning. Economists are expecting a move higher to 345,000 from last week's 339,000. The 4-week moving average is 357,500. The other datapoint is March's trade balance. The trade deficit is expected to narrow slightly to -$42.3 billion from -$43 billion.
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The overseas fireworks will be from the monthly ECB meeting. More than 60% of economists are expecting the ECB to cut its main refinancing rate to 0.50% from 0.75% in response to falling inflation and slowing economic growth. More importantly, the euro has risen heavily against other major currencies such as the US dollar and Japanese yen. We do not think that the ECB will cut rates; after two rounds of LTROs last year, it effectively lowered money market rates to 0. Also, ECB officials have stated that the ECB does not act on FX rates and that it finds the euro fairly valued. Thus, a rate cut seems like a remote possibility.
Tomorrow there will be 57 major US companies reporting earnings. Notable reports include Ocwen Financial (OCN), Beazer Homes (BZH), Monster Worldwide (MWW), LinkedIn (LNKD), Kraft (KRFT), and Kellogg (NYSE:K).