Thursday, June 7, 2012
Fed Chair Ben Bernanke is in the spotlight today as the market
looks for any hints of further Fed support in his congressional
testimony this morning. Expectations of some form of additional
quantitative easing (QE) have increased following the recent run of
soft jobs reports. This morning's weekly Jobless Claims report
further confirms that trend.
Beyond U.S. shores, we have an interest rate cut announcement from
the Chinese central bank, indicating that monetary authorities in
that country are getting ready to stimulate economic growth. On the
European front, Spain held a successful government bond auction
today, indicating continued strong demand for Spanish government
bonds. While yield in this auction was higher than the one held in
April, it was nevertheless modestly lower than the in the secondary
markets.
This morning's Initial Jobless Claims report is not so bad, but
that is solely because recent data on that front has been so
disappointing. It nevertheless further confirms the disappointing
trend established by the last three monthly non-farm payroll
reports. Initial Jobless Claims dropped by 12K last week to 377K.
But since last week's tally was revised upwards by 6K, the real
drop is actually of 6K this week. The four-week average, which
smoothes out the week-to-week volatility, increased by about 1.8K
to 377.8K.
The only thing good about this reading is that it's not that bad.
The good thing on the initial claims front will be for this number
to start going back towards the 350K level, but it is instead
consolidating around 380K. This seems to indicate that the labor
market has clearly lost the momentum that it was showing earlier
this year.
I strong believe that these soft labor market readings are enough
to trigger more QE from the Fed. Bernanke may not tip his hand on
that issue in today's testimony, but odds are about even that we
will get something along those lines in the FOMC meeting later this
month. We may hear him mention 'growing downside risks to the
economic outlook' and the markets will likely take that as evidence
of the Fed's readiness to do more QE down the road.
I agree with those who question the utility of more QE in terms of
actually improving the economy's output, particularly given where
interest rates already. But I don't think that's the key issue
here. The issue is market sentiment and I strongly believe that the
Fed does care about sentiment in the stock market.
In corporate news, we got weaker guidance from a host of operators
this morning, including
J.M. Smucker
(
SJM
),
Navistar
(
NAV
) and
Lululemon
(
LULU
).
Men's Wearhouse
(
MW
) did the same after the close on Wednesday.
Sheraz Mian
Director of Research
LULULEMON ATHLT (LULU): Free Stock Analysis
Report
MENS WEARHOUSE (MW): Free Stock Analysis Report
NAVISTAR INTL (NAV): Free Stock Analysis Report
SMUCKER JM (SJM): Free Stock Analysis Report
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