Positive U.S. labor market numbers and a favorable Euro-zone economic report should put stocks in a favorable mood today. Offsetting these positives will be a couple of mixed earnings reports, with Target (TGT) coming ahead and Hewlett-Packard (HPQ) coming up short. That said, it is perhaps reasonable not to expect major moves in the market today given the gains we have had thus far in recent weeks.
Initial Jobless Claims came in better than expected last week – ‘unchanged’ at 351K vs. expectations of a modest rise. The prior week’s tally was modestly revised upwards to 351K from the originally reported 348K. The four-week average, which smoothes out the week-to-week fluctuation, dropped by 7K to 359K, maintaining its downtrend of recent weeks. This key data series has been consistently moving favorably of late, contrary to initial skepticism on the part of some, pointing to a steadily healing U.S. labor market.
With respect to Europe, we got a better-than-expected German business confidence survey this morning. Also out this morning are the economic growth forecasts for the Euro-zone and broader European Union (EU) regions from the European Commission. The Commission, which is the executive arm of the EU, is forecasting a recession within the Euro-zone region and flat growth within the EU in 2012. While the recession call is no surprise to the market, the extent of the negative growth may not be as problematic as some of the more exaggerated fears have been expecting.
The Commission is forecasting a 0.3% economic contraction in the Euro-zone region this year and flat economic growth in the broader European Union region. This is a drop from the Commission’s forecast last November, when it expected the Euro-zone and EU to expand by 0.5% and 0.6% in 2012, respectively.
The Commission expects first quarter Euro-zone GDP to drop by 0.3% after a same-size drop in the last quarter of 2011. The Greek, Italian and Spanish economies are expected to contract by 4.4%, 1.3% and 1%, respectively, in 2012. The Commission expected the Greek economy to contract less in its November forecast, and expected the Italian and Spanish economies to grow modestly. Germany continues to grow in both forecasts, though its growth rate has fallen – 0.4% vs.0.6%.
On the earnings front, Target came out with a positive EPS surprise, missed on the top line, but provided better than expected guidance. After the close on Wednesday, Hewlett-Packard missed revenue expectations and provided a conservative outlook. Shares of biotech drug maker Vivus (VVUS) will remain in the spotlight as a key FDA advisory approved the company’s weight-loss drug.
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