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March 07: Focus Squarely On Non-Farm Payroll Data

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The backdrop for today’s trading action is a bit mixed, but that may not be enough to prompt stocks to climb down from record levels as they wait for the key labor market reading tomorrow.

In terms of data, the weekly Jobless Claims numbers dropped further in the right direction, trade deficit expanded, and the first revision to fourth quarter productivity came in a tad weaker than expected. Beyond the U.S. shores, monetary policy actions from the European Central Bank (ECB) and Bank of England came in as expected, with both central banks leaving short-term interest rates unchanged.

But the big report on the economic front is Friday’s non-farm payroll report for February, for which today’s better than expected Jobless Claims number is not exactly relevant from a timing perspective. The survey for today’s claims was conducted two weeks after the government jobs survey, so the initial claims data does not help us in drawing conclusions about Friday’s jobs tally from the Bureau of Labor Statistics (BLS). But Wednesday’s ADP report matched exactly the survey period for tomorrow’s BLS report and the ADP report is pointing towards positive momentum in the labor market.

Consensus expectations for Friday’s BLS report (+170K private sector and +160K in total jobs) have not moved up following the better than expected ADP report given concerns about the potential negative impact of the Northeast snowstorms on the data. But the odds are high that we will get a positive surprise tomorrow. The reason for my optimism is the trend in weekly Jobless Claims in recent weeks and also the employment components of the ISM surveys. With initial claims less than 350K, it is reasonable to expect monthly BLS jobs in the 200K vicinity. That's why barring any snowstorm distortions, I will be looking for a strong BLS report tomorrow.

In corporate news, Dell’s (DELL) effort to go private have taken an interesting turn, with Carl Icahn joining the fray by taking a position in the troubled PC maker. In earnings reports, we have weaker than expected results from PetSmart (PETM) and DryShips (DRYS), while data-equipment maker Ciena (CIEN) coming out ahead of expectations.

Consumer Credit figures are to be released today at 3:00 PM EST and are expected to increase by $16 billion after increasing by $14.6 billion in December.



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