The Day Ahead: European Headlines Pressure Stocks Lower Before Jobless Claims, LEI, Philly Fed
The stock market is indicated lower this morning as investors remain weary about Europe’s debt crisis.
Overnight, Japanese GDP rose at a slower-than-expected annualized rate of 4.9% in the first quarter, a Chinese finance minister called for the U.S. to bring its budget deficit under control, Spain issued 10-year bonds at 4.05% — the highest yield of any 10-year auction since April 2009, Greek workers are protesting austerity again, and rumors are circulating that all EU members will adopt Germany's ban on naked short selling.
Ninety minutes before the opening bell, Dow futures are off 113 points to 10,292 and S&P 500 futures are down 15 points at 1,095.00. The 2 year Treasury note yield is 4.1 basis points lower at 0.736% and the benchmark 10 year Treasury note yield is 8.1 basis points lower at 3.289%.
Commodity valuations are also adjusting to the barrage of headline news. WTI crude oil down $1.69 to $68.18 per barrel, and Spot Gold lower by $12.50 to $1,180.60― almost $60 below last week’s record high.
“The recent poor performance of the cyclical commodities combined with the breakdown in Chinese equities is not an encouraging signal for global growth,” said economists at BMO Capital Markets, who noted that oil prices are 10% off from the 200-day moving average.
Today’s three data points should reinforce the recovery story at home, but it remains to be seen if investor sentiment can shift on that alone.
Key Events Today:
8:30 ― Initial Jobless Claims should continue falling in the week ending May 15. The 4-week average is currently at 450,500, just above the 450k threshold that economists often point to as a signal of whether there is net growth in labor markets. Economists anticipate a 4k fall to 440k in weekly unemployment claims, with some expecting a figure as low at 435k.
“Initial jobless claims have been slowly drifting lower, and we expect this trend to continue for the foreseeable future,” said economists at Nomura. “At this point in the business cycle though, claims are not particularly valuable for forecasting non-farm payroll growth, in our view. The current level of claims is consistent with employment growth, and whether or not firms begin to ramp up hiring will determine how strong that labor market recovery will be.”
10:00 ― Leading Economic Indicators, a composite gauge that measures turning points in the economy, should suggest overall growth for the 13th consecutive month in April. But with economists expecting a 0.1% advance, the gain is hardly robust, particularly as it follows a 1.4% gain in March and a 0.6% increase in February.
“While manufacturing activity, financial markets and consumer expectations could have positive contributions, April’s rise in initial jobless claims will subtract from it,” said economists at BBVA. “Persistent growth in this leading indicator indicates that the recovery is strengthening. Furthermore, an expansion in April would be in line with our expectations of GDP growth in 2Q10.”
10:00 ― The Philly Fed Index has been much less consistent or strong compared to its cousin Empire State index for New York. But in May the headline was 20.2, marking broad-based growth that shouldn’t let up up this month. Economists look for a moderate climb to 21.5, far above the zero threshold suggesting growth.
“The Philly Fed's index of manufacturing activity is expected to be almost unchanged at 20.0 in May from 20.2 previously,” said economists at Nomura, who called their forecast “an encouraging sign that manufacturers in this region are still in expansion mode.”