Thursday, April 19, 2012
A slew of economic and earnings news provides the backdrop to today’s trading action. We have reassuring news out of Spain this morning, with a decently successful auction for long-term government bonds. The earnings story is also unfolding favorably, with this morning’s basket of reports from Bank of America (BAC), DuPont (DD) and Morgan Stanley (MS) providing a positive backdrop. But the all-important domestic labor market picture emerging out of this morning’s Jobless Claims reading is less than inspiring.
And that’s not all in terms of economic reports for today: we also have readings on Existing Home Sales, Leading Indicators and a regional manufacturing survey from the Philly Fed on deck for release a little later.
Importantly, Spain held a reasonably good auction for longer-duration government bonds today, which should help allay some of the exaggerated fears that demand for the country’s bonds was drying up. The clearing yield on the 10-year bond was higher than what the country had to pay in the last auction, but the improved demand picture is the reassuring takeaway, at least for today.
This morning’s Jobless Claims data fails to satisfy the doubts raised by last week’s surprise jump in claims and the March payroll miss the week before that. The official report says that Initial Jobless Claims dropped by 2K to 386K, but in reality the preceding week’s tally was revised upwards from 380K to 388K. So, in reality, we got a 6K increase last week to 386K. The four-week average, which tends to smooth out the inherent week-to-week jumpiness of this series, increased by 5.5K to 374.8K last week.
It is unclear at this stage whether the emerging softness in labor market over the last few weeks is a reflection of economic improvement stalling or just due to complications in seasonally adjusting this data. We will know for sure in the coming weeks, but this is nevertheless a disappointing reversal.
Optimists, like myself, will continue to assign the blame for today’s claims miss on the inherent difficulties and complications of seasonal adjustments. But this argument will become weaker if this negative trend fails to reverse in the coming weeks.
Maybe we can take comfort in this morning’s strong run of earnings reports to get over the labor market disappointment. Results from Bank of America appear to have topped expectations, though the plethora of one-time charges makes it difficult to get a clearer view of the numbers. As with its other banking peers, credit quality at Bank of America continued to improve, with reduced credit loss provisions helping earnings.
DuPont came ahead of earnings and revenue expectations, with pricing gains and sales growth driving the outperformance. Verizon (VZ) beat by a penny on in-line top-line results. Morgan Stanley also came ahead of expectations when results are adjusted for the debt valuation adjustment. We will be getting results from Microsoft (MSFT) after the close.
Director of Research
Thursday, April 19, 2012