The headlines out of Europe today don’t look good, with a rating downgrade of Spain pushing yields on Spanish government bonds to new Euro-era highs, further restricting the country’s capital market access. Italy is not far behind Spain either. While Italy was able to successfully complete a bond auction today, but had to pay substantially higher rates to attract the demand.
Stocks have held up relatively decently in recent days despite the steadily worsening Euro-zone situation, likely reflecting hopes of further Fed support. It will be interesting to see how stocks do today, with today’s initial Jobless Claims and the May inflation broadly in the QE-friendly column.
Initial Jobless Claims went up by 6K last week to 377K. But since last week’s tally was revised upwards by 3K, the ‘real’ increase is for 9K. The four-week average, which smoothes out the week-to-week volatility, increased by 3.5K to 382K. For the last many weeks, we have been hoping for this series to start going down towards the 350K level. But it seems to be ‘stuck’ around the 380K level, refusing to go down. This is the clearest sign that the labor market has clearly lost the momentum that it was showing earlier this year.
It is difficult to say whether this morning’s Initial Jobless Claims report will be enough to tip to the Fed over to announce more support in its meeting next week, but this report nevertheless provides further confirmation of the disappointing trend established by the last three monthly non-farm payroll reports. I would think that with inflation essentially a non-issue as today’s CPI reading shows, the Fed will be willing to provide further support given the potential for negative shocks coming from Europe.
In corporate news, Kroger (KR) came out with better than expected results and raised full-year guidance. Smithfield Foods (SFD) came up short of expectations, as higher costs weighed on margins. In other news, Nokia (NOK) announced major layoffs as part of a major restructuring initiative to improve fast declining competitive position.
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