March 10, 2011
Sheraz Mian
Director of Research
The downgrade of Spain’s sovereign debt and the violent stalemate in Libya are expected to offset the positive news about the domestic labor market. The widening trade deficit only adds to the negatives. As such, the market will find little reason to get out of its recent uncertain and tentative mood.
This morning’s weekly Jobless Claims report, though modestly weaker than expected, was the third in a row showing claims below the 400,000 level. Even the four-week average has fallen below that critical level now. Today’s report confirms the emerging trend of a labor market turnaround.
This turnaround has been showing up, besides the weekly claims numbers, in the employment components of the ISM Indices and February’s nonfarm payroll report. Confirmation of this trend over the coming weeks will be a major boost to the economic recovery. This will signficantly improve the economy’s ability to withstand challenges coming its way, like the current worry about high oil prices.
The European sovereign debt issue was a major concern some time back, but appeared to have gone away in the last few months. However, today’s downgrade of the Spanish government debt by Moody’s reminds us that the issue is very much alive. The rating agency cited the soft economic outlook for Spain limiting its government’s ability to institute and implement tough restructuring measures.
P.S. What is Zacks Ahead of Wall Street? To find out more about Zacks Ahead of Wall Street, click here.
Zacks Investment Research
