Thursday, June 6, 2013
The stock market today will likely not do much after two days of back-to-back declines and ahead of tomorrow’s all-important May non-farm payroll report. The jobs report is always very important, but it has acquired even more significance this time around as investors see it as providing more visibility about the Fed’s QE program. Beyond the U.S. shores, the European Central Bank did what was expected by leaving interest rates unchanged.
The data ahead of tomorrow’s jobs report appears to indicate that the report will likely come up short of current consensus expectations of about +170K jobs. This morning’s Jobless Claims numbers were essentially in-line with expectations – with the initial claims down 11K to 346K and the 4-weeek average going up by 4K to 352.5K. But Wednesday’s ADP report and the employment components of this week’s two ISM reports were on the weak side.
By conventional market standards, these readings should have been read as broadly QE friendly, but that’s not how the market interpreted them. In fairness to the market, it is reasonable to be wary of the ADP report’s predictive value as it has come up short of the government’s jobs report in each of the last three months.
Do we need a very strong jobs number, something above +200K, to keep the ‘taper talk’ alive?
My sense is that as long as tomorrow’s report doesn’t show any fresh evidence of weakness, the ‘taper’ issue will remain front and center. That said, a weak number, say something under +100K, will put a dent in the ‘taper’ narrative and strengthen the FOMC doves who are concerned about the sequester’s impact on the economy.
We will find out more tomorrow, but it’s fair to assume that the ‘taper’ issue will remain a key part of market discourse for a while. And as we have seen in recent days, the ‘taper’ talk is very destabilizing for the stock market.
Director of Research