Ahead of Wall Street - December 1, 2011 - Ahead of Wall Street

Thursday, December 1, 2011

A day after indicating a shift in its monetary policy stance for the first time since late 2008, China is again in the news today, but this time with reports of slowing manufacturing activities. The China report, coupled with the weak initial Jobless Claims data on the home front, will likely dampen the market's enthusiasm so vividly on display in Wednesday's monster rally. But some introspection would be called for anyway following such sharp gains.

The Chinese Purchasing Managers Index ( PMI ) for November came in weaker than expected this morning, putting the widely watched measure of manufacturing activities into contractionary territory for the first time in three years. We also have PMI readings from other Asian countries as well that overall paint a relatively soft picture of manufacturing activities throughout the region. We have the U.S. manufacturing ISM reading on the docket for a little later, but given Wednesday's Chicago PMI reading and the overall tone of recent economic news, the expectation is for favorable ISM report.

The soft Chinese manufacturing reading brings into sharp focus the growth outlook for the Chinese economy, thus far an engine for the global economy. The debate lines would be around whether Wednesday's action by the People's Bank of China reflected its victory over persistent inflationary pressures or was indicative of its efforts to get ahead of hard landing for the economy. I subscribe to the former view, but have to concede that the evolving European dislocation may have consequences for the Chinese economy that many of us are unable to appreciate at present.

On the U.S. front, the initial Jobless Claims data this morning was clearly disappointing, particularly given the recent improving trend in this key series. Wednesday's monster ADP report had started showing up in raised expectations for Friday's non-farm payroll report. It will be interesting to see if today's claims data will dampen some of that positive momentum. Overall though, I wouldn't read too much into today's claims numbers. This series is extremely 'jumpy' on a week-to-week basis and the broad trend on the labor market front remains in the positive direction.

In corporate news, Yahoo ( YHOO ) shares will likely be in the spotlight following media reports of a number of suitors getting ready to acquire the firm. We also have strong same-store sales numbers for November from a host of retailers this morning, further evidence of a positive start to the holiday shopping season. The numbers are particularly impressive from Costco ( COST ) and Limited Brands ( LTD ).

Sheraz Mian

Director of Research

COSTCO WHOLE CP ( COST ): Free Stock Analysis Report

LIMITED BRANDS ( LTD ): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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