Jobs Data Will Drive Trading in Coming Week

Traders' responses to Friday's employment report will set the tone for the stock market next week.
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NEW YORK (

TheStreet

) -- With the uncertainty over the government's March employment data stripped away and little else on investors' plates, the reaction from traders to the report will largely drive the stock market in the coming week.

The

March nonfarm payrolls report

showed an increase of 162,000 jobs, which came in below the 200,000 consensus of a wide range of estimates. The unemployment rate held steady at 9.7%.

Stock market participants were unable to trade on the data, though, as the release came on the Good Friday holiday. The bond market was open Friday morning, however, and Treasury prices

declined on the employment report

as it pointed to economic strength that eventually could cause the

Federal Reserve

to raise interest rates.

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With only a smattering of data on the economic docket over the next five trading sessions and the first-quarter earnings reporting season still a week away, equity traders have little else to react to when they return on Monday.

Some economists argued that the report was actually a positive one, due to the relatively low number of jobs created by the government census. Only 48,000 temporary workers were hired for census-taking, while private-sector employment rose by 123,000 jobs, the most in nearly three years.

While the average work week increased slightly to 34 hours in March, the report showed that hourly earnings fell 0.1%, compared with estimates for a 0.2% rise. Some may speak of the "Goldilocks" quality of the March jobs data, but others are quick to remind that one report doesn't indicate a trend yet.

"Regardless, this is still one data point, and the market is not comfortable with the health of the economy in terms of longer-term prospects of job growth," says Justin Golden, a strategist at Macro Risk Advisors. "While it has perked up, we still have nearly 10% unemployment, and those figures still cause great concern down the road."

Even though employment growth is needed over the long haul to sustain any economic recovery, some market watchers say that the idea of a stronger-than-expected jobs report could push bond yields (which move in the opposite direction of bond prices) even higher in the coming week, which could put pressure on the equity market.

"The bond market has been lousy the last two weeks, so we've seen a backup in interest rates," said Paul Nolte, managing director with Dearborn Partners. "I don't want to say the bond market has priced the report in, but it is certainly providing a much higher yield than it was two weeks ago."

Following a recent string of poor bond auctions, the yield on the 10-year note has pushed higher close to the psychologically important 4% level, which is considered to be a headwind for the equity market.

With another packed schedule of auctions this week, as well as pressure on bonds from the jobs report, market analysts say the bond market should garner a big focus over the next five days.

Seven separate Treasury auctions are scheduled for next week, starting on Monday with a $28 billion auction of 3-month bills, a $29 billion auction of 6-month bills, and an $8 billion auction of 10-year TIPS.

Tuesday will see a $26 billion auction of 1-year bills and a $40 billion auction of 3-year notes. That's followed Wednesday by a $21 billion auction of 10-year notes and Thursday by a $13 billion auction of 30-year bonds.

"That's a lot of bonds," says Robert Pavlik, chief market strategist with Banyan Partners. "First, the primary reaction will be to the jobs report on Monday, which the stock market will react negatively towards if yields spike higher. But then the bond market reaction will come from all of these bond auctions. It's too early in the recovery for the 10-year to be at 4%. And that makes me worried as a fixed-income holder."

Market participants will also be on high alert for comments from several Federal Reserve officials. Minneapolis Fed President Narayana Kocherlakota will speak Tuesday and again Thursday, while New York Fed President William Dudley, Kansas City Fed President Thomas Hoenig and Fed Chairman Bernanke will offer remarks on Wednesday.

The central bank will release the minutes from the March 16 meeting of the Federal Open Market Committee. Traders will need to examine why Kansas City Fed Presidet Hoenig dissented from the interest rate decision for a second consecutive time, as well as look for any indication the Fed was considering the removal of the "exceptionally low" and "extended period" terminology from the accompanying statement.

The Fed headlines will be all the more important in the wake of the jobs report and the reaction by the bond market.

"A negative reaction by the bond market to the jobs report comes due to the idea that the economy is heating up and that the Fed will have to remove some quantitative easing measures and may have to change the wording in their statement," Pavlik says.

"Any clues that would suggest that language changes in the next few months will be very important, the market would react to that," said Macro Risk Advisors' Golden. "That would really rattle things up. It's the timeline more so than the actual act."

In addition to the movement of the bond market, investors will be watching the movement of the dollar, which has traded lower against the world's other currencies. That has caused commodity prices to jump. Market analysts say that investors should keep an eye on the materials and energy sectors during the coming week.

The jobs report won't be the only data for traders to react to. The Institute for Supply Management will post the March reading on its services index on Monday, which should improve to a reading of 53.6 from 50 in February. Any reading of more than 50 indicates expansion, rather than contraction.

Monday will also bring the release of pending home sales data for February, which are expected to have declined 1% after a 7.6% drop in January.

The remainder of the week's reports, including weekly initial jobless claims, consumer credit and wholesale inventories for February, and weekly crude inventories and mortgage application activity will be spaced out from Tuesday through Friday.

Turning to earnings,

Alcoa

(AA) - Get Report

won't kick off the first-quarter rush of reports until April 12, but several companies will open their books over the next few sessions.

Family Dollar

(FDO)

,

Monsanto

(MON)

,

Bed Bath & Beyond

(BBBY) - Get Report

,

Pier 1 Imports

(PIR) - Get Report

and

Constellation Brands

(STZ) - Get Report

are among a handful of companies out with quarterly results during the coming week.

The earnings fireworks won't come until the following week, however, when

Intel

(INTC) - Get Report

,

JPMorgan Chase

(JPM) - Get Report

,

Bank of America

(BAC) - Get Report

and

General Electric

(GE) - Get Report

post quarterly numbers.

"The first bit of earnings is that week, but this week is going to be about preparing for all of that," Macro Risk Advisors' Golden says. "People are positioning themselves now for that, although I'm not sure people will be loading the boat. People are being a little more safe about the exposure they have in the market."

In other equity news, traders will also be on the lookout for early sales numbers on

Apple's

(AAPL) - Get Report

iPad, which went on sale Saturday. Apple shares hit an all-time high Friday of $238.73 just ahead of the device's release.

-- Written by Robert Holmes in Boston

.

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