Monetary policy easing by China's central bank and the very strong ADP jobs report are expected to shift the market's attention from developments in Europe. But as we have all come to appreciate from the market's behavior lately, Europe related headlines remain the biggest draw for the market.
In a major monetary policy change, the People's Bank of China (PBOC) announced today a 50 basis-point cut in bank reserve requirements, the first since December 2008. The move reverses the Chinese central bank's long-standing monetary tightening stance and is aimed at giving the Chinese economy a helping hand in the face of Eurozone turmoil.
The market will be justified by reading into this move the end of the inflation-fighting phase from the PBOC and the likely beginning of a looser monetary stance going forward. Confirmation of that trend will be a net positive for the Chinese growth outlook and the U.S. stock market.
On the domestic front, we have a busy economic calendar today, with the remainder of this week putting a spotlight on the U.S. labor market. The labor market focus starts with this morning's better-than-expected ADP report and culminates in Friday's November non-farm payroll reading.
In-line with the recent trend of positive U.S. economic readings, the ADP report came significantly better than expected, with 206K jobs created in November. The prior month's tally revised upwards to 130K from the originally reported 110K level. The ADP report is supposed to serve as a preview of the official monthly jobs numbers from the Bureau of Labor Statistics (BLS) that comes out this Friday.
Today's ADP report is way ahead of market expectations for private-sector jobs in Friday's BLS report. If the ADP report is any indication of things to come on the labor market front, then we will likely get a blockbuster number on Friday.
We have to keep in mind, though, that ADP's track record in foretelling the BLS numbers on a month-to-month basis is less than stellar. We will have to wait till Friday to know the forecast accuracy of today's report. Overall though, this report is expected to cause expectations for Friday's BLS report to go up.
In other corporate news, we have credit rating downgrades for the major U.S. banks, including Citigroup (C - Analyst Report) and Bank of America (BAC - Analyst Report) from the S&P. In other news, American Tower (AMT - Analyst Report), a major telecom infrastructure player, has completed the process to convert itself into a REIT structure.
In other economic news today, we have the Chicago PMI coming out a little later, which has an impressive track record of forecasting national ISM report. We also expect the Fed's Beige book later this afternoon.
Europe Sets the Table Again
Germany Runs the Show, Still