Thursday, July 5, 2012
Surprisingly favorable labor market data on the home front ahead
of Friday's key government jobs report is a key positive indicator
this morning, likely offsetting some of the negativity from the
sub-par manufacturing ISM report earlier this week. Also providing
a favorable backdrop for today's trading action are announcements
of monetary easing from three major central banks. We have the
service-sector ISM reading on deck for release a little later, but
I would think that this morning's positive labor reports will be
reassuring enough to offset any surprises from that front.
We have a lot of central bank action this morning, with authorities
in the U.K, the Euro-zone, and China announcing easing measures.
The European Central Bank (ECB) rate cut announcement was largely
expected, the Bank of England's expansion of its bond-purchase
program wasn't much of a surprise either, but the Chinese action is
not only surprising but likely indicative of the authorities'
concern at the pace of deterioration in the economy. Let's hope
that the market finds China's second rate cut in less than a month
reassuring and not a sign of panic.
Reversing the negative trend of the last two months, the
monthly jobs report from Automatic Data Processing (ADP) came in
better than expected. Since the ADP report tries to preview the
monthly labor market report from the government's Bureau of Labor
Statistics (BLS), this morning's positive read from the ADP will
raise hopes of a positive print from the BLS tomorrow. For June,
the ADP report is showing better than expected private-sector jobs
of 176K and the tally May was modestly revised upwards to 136K from
133K. The biggest increase came from smaller firms, with gains in
both goods producing as well as service sector employers.
Manufacturing jobs were up 4K and by 8K in construction, modestly
better than what the June manufacturing ISM report showed this
week.
This morning's initial Jobless Claims report is equally positive as
it reverses the stalling trend of the last few weeks. Initial
Jobless Claims dropped 14K last week to 374K, and the four-week
average, which smoothes out the week-to-week volatility, dropped by
1500 to 385.8K. While the period for this week's Jobless Claims
data does not correspond with the survey period for tomorrow's BLS
report, it nevertheless provides a reassuring backdrop for
tomorrow's BLS report.
The expectation for Friday's BLS report ahead of this morning's
ADP report was for headline gains of around 100K. While we may not
see any upward revisions to forecasts at this late stage, but many
would reasonably be looking for a positive surprise tomorrow. A BLS
report tomorrow of above 100K jobs in June would not necessarily
mean that the economy is growing at a higher pace than 2%. But it
would definitely confirm that it is not weakening either. And that
would be a net positive. The recent momentum on the housing front
and the drop in gasoline prices are some of the bright spots for
the U.S. economy, likely indicating that a growth rate in the 2%
vicinity is very much sustainable.
In corporate news,
Apple
(
AAPL
) is getting ready to launch of a smaller screen iPad in September,
according to the Wall Street Journal. The new device could help the
company cement leading market share position in the tablet space by
warding off competition from
Amazon
(
AMZN
) and
Google
(
GOOG
) who both have 7-inch devices. Microsoft's (MSFT) new tablet,
which hasn't yet hit the market, has an even bigger screen that the
original iPad. In other news,
Macy's
(
M
) reported weaker than expected June same-store sales numbers and
provided a lower earnings guidance.
Sheraz Mian
Director of Research
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