Only skeleton crews and kids were manning Wall Street trading desks Thursday during a holiday-shortened week, so maybe that’s why a flurry of otherwise better-than-expected economic news and stimulative central bank moves was met with a shrug.
The European Central Bank cut rates, and the Bank of England expanded its own version of quantitative easing. But those moves were expected, so, OK, no reason to rally there.
However, China came out with a surprise rate cut — its second easing of monetary policy in a month — while a host of key economic data either surprised to the upside or came in no more tepid than expected.
Overseas brought an unambiguously positive surprise when the latest figures for German factory orders showed an increase of 0.6%. They were forecast to come in flat. Since Germany is at the cornerstone of Europe’s economy — and the only economy in the region not sucking fumes — that’s a welcome relief.
Meanwhile, in the U.S., the news was also largely positive. Yes, June retail sales were weak, but that was widely expected, thanks to strong year-ago numbers (and, therefore, tough comparisons) and because the mild winter prompted folks to do a lot of seasonal shopping earlier this year.
And, yes, the ISM services index missed expectations. But it was still above 50, indicating expansion, unlike the manufacturing survey we saw earlier in the week. Moreover, as with the manufacturing index, the employment component for service businesses was surprisingly strong.
Which brings us to the most important news: good data on the all-important jobs front. Initial weekly unemployment claims fell to 374,000 — the lowest level since mid-May. That’s down from the prior week’s number of 388,000 and better than Wall Street’s forecast for 385,000. The key four-week moving average ticked down slightly.
At the same time, we learned that private payrolls grew by 176,000 in June, according to ADP (NASDAQ:ADP), far better than the 100,000 new jobs economists were expecting. Separately, layoffs unexpectedly fell to their lowest level in more than a year, according to Challenger, Gray & Christmas. Indeed, the number of workers companies said they plan to pink-slip fell 39% from the previous month and 9.4% over last year.
Naturally, that string of positive employment reports has economists rethinking their views for Friday’s U.S. June jobs report — the most important piece of economic data we have.
Jan Hatzius, chief U.S. economist at Goldman Sachs (NYSE:GS), for example, raised his nonfarm payrolls forecast to 125,000 new jobs created in June from a prior outlook of just 75,000. May’s payroll report showed a downright-depressing 69,000 new jobs.
“This week has featured five better-than-expected pieces of news relating to employment,” Hatzius wrote in a note to clients, pointing to a relatively robust employment index in the ISM manufacturing survey, a month-over-month increase in online job advertising, a much better-than-expected ADP employment report, lower new jobless claims and an improvement in the ISM nonmanufacturing employment index.
With so much focus on jobs, it’s kind of like the data threw a party — and nobody showed up.
But that’s what thin holiday volume does. It makes parsing the market’s verdict on the latest developments pretty hard, and Friday will be even quieter still.
But beyond that, this is all theoretically good for stocks. After all, it’s what investors wanted: central bank easing and better jobs news. If companies can beat-and-raise on some low expectations when earnings season kicks off next week, perhaps stocks can start to put the summer doldrums behind them.