Monday, March 5, 2012

Economic reports this week, with a focus on the labor market, have the potential to push stocks to new highs. A positive surprise for the February non-farm payroll report coming out this Friday, which will be the third strong monthly jobs report in a row, will most likely serve as the catalyst to stocks to new highs. We will get a preview of the Friday government jobs report through the ADP report on Wednesday.

On the docket today is the February non-manufacturing ISM survey coming out a little later, with the market looking for a modest pullback in the composite reading, showing a still-expanding economy. Given the negative surprise in last week’s manufacturing ISM report, it will be interesting to see how the much larger service sector performs today.

Also in the news today is the so-called lower economic growth target from China. The Chinese premier announced a 7.5% economic growth target for the economy, down from the previous target of 8%. Please keep in mind that the Chinese economy grew at a 9.2% pace in 2011 and the growth rate was even higher in the preceding years. The prime minister’s address also highlighted inflation target and the government’s commitment to orient the economy towards domestic consumption. The inflation target of 4% for 2012 is down from last year’s 5.4% actual and inline with the previous target, but appears to be a tad higher than what the market was looking for this year. Overall, there is little new in today’s Chinese news as most of these ideas have long been discussed by official sources in the past.

In corporate news, BP (BP) reached a settlement with the plaintiffs in the very complex Gulf of Mexico oil spill case over the weekend. The company plans to pay out the estimated $7.8 billion cost of the settlement out of the $20 billion funds it set aside cover the cost of claims related to the spill. This is a net positive for the oil giant as it settles the thousands of claims from residents and businesses along the Gulf Coast, but is unlikely to be the end of all of its spill related liabilities as it still needs to go through a protracted legal battle with the Federal government.

Sheraz Mian
Director of Research

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