Investors not Convinced on Jobs
Market Commentary
By WSS Research Team

By Carlos Guillen

Despite rather favorable employment data out today, investors do not appear to be convinced that the jobs situation will get better, at least not in any significant way to boost the economy and stocks. As such, equity markets are trading slightly in the red but are recuperating from sharper losses earlier in the session.

This morning's ADP report was rather encouraging… for a change, but still everyone will be looking at tomorrow's jobs numbers for a clearer snapshot of the current employment situation. According to ADP, 176,000 private sector jobs were gained during June, significantly above the Street's estimate calling for a gain of 105,000 jobs and well above the 136,000 added jobs in May. In June, the payroll gains were driven by small and medium-sized businesses, which added an estimated 93,000 and 72,000 jobs, respectively. Large business payrolls increased by just 11,000. Most of the added jobs came from the services sector, which ADP said added 160,000 jobs. The other component of jobs, the goods-producing sector, provided an additional 16,000 positions. The overall change in private sector jobs was certainly encouraging and is causing many on the Street to reconsider their estimates for tomorrow's government jobs report. While the service sector continues to be a strong source of jobs in the U.S., it is certainly a good sign to see that the goods producing sector stopped shedding jobs and showed a gain after two months of declines. Nonetheless, one data point does not make a trend, and the overall deceleration in job gains that has been taking place is likely to result in a slightly increased unemployment rate when it comes out at tomorrow.

Initial Claims data posted earlier today was also bit encouraging, as the result was better than expected, making a sharp acceleration to the downside. According to the Labor Department, initial claims during the week ended June 30 totaled 374,000, decreasing from the 388,000 revised figure reported for the prior week and landing below the Street's estimate of 385,000. Clearly, this result is helping to assuage investor's concerns that the jobs situation is worsening, but tomorrow's jobs numbers will certainly bring clarity to the issue, and judging from today's ADP better than expected private sector jobs, it is not too farfetched to see nonfarm jobs above the 105,000 consensus estimate.

While Tuesday's data from the Institute for Supply Management (ISM) showed that US economic activity in the manufacturing sector (PMI) contracted in May for the first time since July 2009, ISM data posted today showed that economic activity in the non-manufacturing sector (NMI) continued expanding during the same time period. However, the magnitude of the expansion was slower than expected, giving an indication that the largest part of the economy will have difficulty picking up as job growth stalls. The ISM non-manufacturing index fell to 52.1 in May from 53.7 in April, landing lower than the Street's estimate of 53.0. Similar to the PMI, the weakness in the non-manufacturing sector was the result of weaker new order levels (53.3 in June from 55.5 in May) combined with a contraction in order backlogs (47.5 from 53.0). This led to a 3.9 point drop in the business activities/production index, 51.7 from 55.6. On the positive side, given that a reading above 50 signals expansion, today's reading continues to demonstrate growth. Nonetheless, expansion among the service industries may be moderating after a surge in the first quarter that coincided with the strongest pace of job growth in six years.

Central Bank Bonanza
By David Urani

The name of the game today is global coordinated central bank action. Alright, nobody has actually admitted that there was a coordinated attempt by the various world central banks, but it's been too much of a coincidence today. Funny enough, both the Bank of England and the People's Bank of China cut lending rates at the exact same time, and this was China's second rate cut in a month. Along with their rate cut, the BOE also added 50 million pounds of quantitative easing to their existing program taking the total to 375 billion pounds.

After that, the ECB followed up with its 25 basis point rate cut, which was widely expected by the Street. But it didn't stop there, with Kenya jumping into the mix with a rate cut of its own. And finally Denmark followed up, and the interesting thing about their deposit rate cut is that they took the rate down to -0.2%, meaning people will pay to store money in Denmark.

Consequentially, all this global monetary dilution had caused the dollar to spike up more than 1.3% today. Aside from another weather-related increase in crop futures, commodities are mostly down, including a 0.9% drop in gold and a 2.1% drop in silver. In fact, I think part of the reason why the markets are in negative territory today is because of the increase in the greenback which is generally weighing on all dollar-denominated assets.

Yet still, with all of this central bank action one would think the global markets would be doing better but in fact Europe had a rough day. I think people were expecting a little more from ECB Chief Draghi, who made no hints of another LTRO sovereign bond buying program or other actions. As a result of that, and rising rates amid bond auctions, the Spanish and Italian bond yields are back up near crisis levels; most of the relief after that big EU summit meeting seems to have worn off now. The Italian market was off 2% and the Spanish market was off 3%.

Pardon Me… Do You Have Any Grey Poupon?

Yes, high-end retail may be the highlight of the market today; several retailers posted monthly sales numbers and it's the upper-end ones that have stood out. Nordstrom (JWN) posted an 8.1% same-store sales increase for June, along with a 6% increase for Saks (SKS) and a 7% increase for Limited Brands (LTD). The results have rubbed off on related stocks, with the likes of Coach (COH), Michael Kors (KORS), Harry Winston (HWD), Vera Bradley (VRA), Ralph Lauren (RL) and Lululemon (LULU) each up more than 2%.

That's a particularly interesting theme, because separate reports from both the University of Michigan and Gallup showed that consumer confidence waned significantly among high-income folks last month. Then again, these stocks already had a rough past couple of months so I think we're seeing a bit of a rebound rally here.

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