This morning’s dramatically positive Jobless Claims data will likely do little to cheer the market, as investors will likely see it lowering the odds of further monetary stimulus from the Fed in the coming days. The overall backdrop for the market has been steadily weakening in recent weeks, be it the domestic economic outlook, the corporate earnings scene or the international growth environment. And many have been looking towards the Fed to come back to the market’s rescue.
The market didn’t seem to be sufficiently impressed with Wednesday’s Fed minutes, but the overall tone coming through the minutes is of a Central Bank ready to take more action. While the committee did not announce a new round of bond purchases and decided instead to extend Operation Twist, ‘several members’ did acknowledge the need for more policy stimulus should the recovery lose momentum.
Notwithstanding this morning’s surprisingly positive Jobless Claims reading, the overall trend line of economic reports has lately been on the weaker side. And by the time the FOMC meets again in August, we will have the July non-farm payroll report and the second quarter GDP reading available. The GDP report will most likely show quarterly growth less than the first quarter’s 1.9% pace.
I would think that the possibility of a QE announcement in the August meeting will increase significantly if the July jobs report is along the same lines as the last few readings. But this morning’s initial Jobless Claims reading runs to counter to the economy-is-losing-momentum narrative, and could change the tone of market discourse if sustained over the next few weeks.
The initial Jobless Claims report is very positive as it reverses the stalling trend of the last few weeks. Initial Claims dropped 26K last week to 350K, the lowest level in more than three years. The four-week average, which smooths out the week-to-week volatility, dropped by 9.8 to 376K.
Jobless Claims at this level would be consistent with monthly job gains much better than what we have been seeing in the last few months. The key would be whether today’s report is a one-off reading or the start of something more enduring.
On the earnings front, industrial supplier Fastenal (FAST) beat EPS by a penny, though it came modestly short of revenue expectations. Shares of Supervalu (SVU) will be in the spotlight today as the grocery-store operator not only reported weaker than expected results, but also announced suspension of its dividend and withdrawal of its full-year guidance.
(This article was originally published as Ahead of Wall Street – July 12, 2012.)
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