Is the Economy Losing Steam? - Ahead of Wall Street
04 Abril 2013 - 6:39AM
Zacks
Thursday, April 4,
2014
Another day, another underwhelming economic report. Today’s reading
of weekly Jobless Claims data appears even more disappointing than
what we saw yesterday from Automatic Data Processing
(ADP). But the key number is
tomorrow’s jobs report from the government’s Bureau of Labor
Statistics (BLS), expectations for which have been coming down
post-ADP.
Also in play in today’s trading
session are interest rate decisions from the European Central Bank
(ECB) and Bank of Japan (BOJ). The ECB decision came in as
expected, with no interest rate cut despite the widespread economic
pain in the currency union. But the BOJ more than came through with
what the market was looking for.
The new governor of the Bank of
Japan is leaving no stone unturned by taking a leaf out of the
Bernanke playbook and announcing an aggressive easing program to
fight entrenched deflationary expectations. Japanese stocks have
been the best performing this year of all developed markets in
anticipation of this BOJ move. But given the positive surprise in
today’s announcement, they may have some more room to run.
Yields on Japanese government bonds were quite low to begin with,
but will likely come down even further following this aggressive
action by the BOJ. The Japanese Yen which had been weakening
relative to the Euro and the dollar in anticipation of this move
will likely fall some more. That’s a problem for Europe, which it’s
rate decision today fails to address. Perhaps Draghi can paint a
future outlook in his press conference that can anchor
expectations. But hard to envision the markets responding to mere
talk.
On the home front, today’s Jobless Claims numbers provide another
worrying sign that the economy may be moving towards a ‘Spring
Swoon’. Initial Jobless Claims jumped by 28K to 385K, erasing weeks
of gains in one move. The consensus expectation was for a modest
drop. The four-week moving average went back above the 350K level –
increasing by 11.3K to 354.3K. The surprise jump could be due to
seasonal adjustement issues related to Easter and the Spring break,
but we will have to wait a couple of more weeks to decipher that.
Today’s disappointing data comes after the weak ADP and the two ISM
surveys. The claims miss is not relevant to tomorrow’s BLS report
as the survey week doesn’t correspond with the BLS survey period,
but it is nevertheless a further sign that the economy may have
started losing momentum in March after strong gains in the first
two months of the quarter. As a result, expectations for the BLS
jobs report tomorrow have started coming down from the original
200K.
I wouldn’t expect the market to resume its positive momentum in the
absence of unequivocally positive economic data. That’s what we
should expect to justify the market’s record levels. But what we
are seeing instead is far from unequivocally positive, or even just
positive. It’s actually negative. Let’s see what Friday brings.
Sheraz Mian
Director of Research
AUTOMATIC DATA (ADP): Free Stock Analysis Report
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