Ahead of Wall Street - April 12, 2012

Thursday, April 12, 2012

This morning’s economic data provides no comfort to those looking for evidence that last Friday’s jobs miss was a one-off event. We have a big negative jump in Initial Jobless Claims, which could be interpreted as confirmatory of the March payroll miss. But it may be premature to reach that conclusion given the impact that the Easter holiday had on these numbers. The inflation data this morning - benign on the ‘headline’, but somewhat hot on the ‘core’ – is not consistent with it needs to show to pave the way for further QE from the Fed. All in all, this morning’s basket of data provides no clarity about the underlying economic picture.

The initial Jobless Claims data came in weaker than expected, the second soft labor market reading after Friday’s surprise non-farm payroll miss for March. When you add in the 10K upward revision to the previous week’s tally, we saw a 23K jump in initial claims to 380K. The four-week average, which tends to smooth out the inherent week-to-week jumpiness of this series, increased by 4.2K to 368.5K last week.

The increase in claims was not altogether unexpected given the earlier Easter holiday in the survey week, but the extent of the jump is nevertheless disappointing. This is particularly so as many in the market were looking this report to confirm that the payroll miss last Friday was a surprise one-off event. Optimists, like myself, will continue to assign the blame for today’s claims miss on the inherent difficulties and complications of seasonal adjustments. But this argument will become weaker if this negative trend fails to reverse in the coming weeks.

In other economic news this morning, the March Producer Price Index (PPI) came in weaker than expected on the ‘headline’ at ‘unchanged’ vs. up 0.4% in February. The ‘core’ reading, which strips out the food and energy components, came in hotter than expected at up 0.3% vs. up 0.2% in February. We will get the March CPI report tomorrow, but this PPI reading is not benign enough from a QE perspective. Meaning that those looking for further Fed action will see it as a negative read. Overall though, the PPI reading appears to show some pricing pressures building in the supply chain, but there is no reason to doubt the Fed’s view that these pressures will notprove to be temporary.

On the earnings front, we a better than expected showing from Rite Aid ( RAD - Analyst Report ) this morning, while earnings from Fastenal ( FAST - Analyst Report ) , the nuts and bolts distributor, came in-line with expectations. The major earnings report today is from Google ( GOOG - Analyst Report ) after the close, whose shares have noticeably been absent from the market rally lately given its sub-par results in the last quarter. In other news, shares of Royal Dutch Shell ( RDS.A - Analyst Report ) will be in focus after an oil sheen was spotted in close proximity to its fields in the Gulf of Mexico. There is no indication of a leak yet, but the market is justifiably wary of any such development following the BP ( BP - Analyst Report ) disaster two years ago.

Sheraz Mian
Director of Research