Wednesday, November 2, 2011
The Greek referendum news has sucked the oxygen out of the market. We were all getting ready to build on October’s impressive gains by aligning our portfolios for positive momentum in these final months of the year. A key contributing factor in this improving backdrop was last week’s Euro-zone deal, which appeared to provide for a viable framework to address the problem.
Today’s G-20 summit in Cannes, France, was expected to give the Euro-zone deal a global seal of approval. Instead, they are left picking the pieces of that deal following the Greek announcement. Whatever the motivation of the Greek government to go this route, they have succeeded mightily in keeping the issue not only alive, but also front and center for global markets. One could discuss the different scenarios and outcomes over the coming weeks, but the fact remains that the continued existence of this issue is a net negative for the market.
Had it not been for Greece, our primary focus the rest of this week would have been the domestic labor market, starting with this morning’s better-than-expected ADP jobs report and culminating with the all-important government non-farm payroll report on Friday. We also have the FOMC statement coming out later today at the end of the Fed’s two-day meeting, to be followed by Ben Bernanke’s press conference. No surprises are expected out of the Fed meeting, though the press conference may provide more color on Bernanke’s take on the evolving economic picture.
The ADP report came in better than expected, with 110K private sector jobs created in October. The prior-month’s tally was revised upwards to 116K from the originally reported 91K level. The ADP report is supposed to provide the market with a preview of the official non-farm payroll monthly numbers from the Bureau of Labor Statistics (BLS). Today’s ADP report is broadly in-line with the expectations for private-sector jobs in Friday’s BLS report, which is a net positive in these uncertain times.
The ADP report’s track record in foretelling the BLS number on a month-to-month basis has been less than solid. We will have to wait till Friday morning to find out how good of a job today’s ADP report did. Overall, today’s ADP report provides a relatively favorable view of the labor market.
On the earnings front, we got better than expected earnings and revenue numbers from Time Warner (TWX), while Comcast (CMCSK) came modestly short of earnings expectations. JDS Uniphase (JDSU) came out with an earnings and revenue beat, but provided a subdued outlook for the current quarter due to the floods in Thailand.
It is doubtful that the better than expected ADP report will make the market forget about its Euro-zone fears. May be some calming and reassuring words from Bernanke later this afternoon will do the trick. In any case, Greece and Europe will not be far from investors’ minds today and for many more days to come.
Sheraz Mian
Director of Research
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