A number of people filing for unemployment benefits last week increased to 484k, a second straight increase and a number far higher than expected 440k. It is obviously way lower than 600k+ numbers saw in a corresponding period of 2009 but then again higher than 400k- which should go along with increases in employment. The markets didn’t react to the figure in a significant way but it is definitely something to pay attention to.

Jobless recovery?

With bullish moods and most of the economic indicators improving markedly (with a recent leap in retail sales on top) a jobless recovery story, popular during the previous recovery (2002-2004) might gain many supporters again. However, there are two stark differences. First of all, at the beginning of the previous decade, the US companies took advantage of heavy IT spending during the dot-com boom. This indeed could have had increased productivity and allowed for less employees. Secondly, low interest rates, splendid liquidity and rising real estate prices encouraged households to spend more even if the situation on the labor market remained unfavorable. This time those effect will not repeat or at least not to such an extent. Therefore a revival on the labor market plays even more important role than before.  

Google sparks profit taking

The earnings season has indeed a very solid start with Google being the third major company to beat expectations. The IT company reported higher earnings and sales but investors sold its shares in after-market trade. The official reason for it is a declaration from Google to spend more on development and hiring. However, this might as well be a change in investors’ behavior (neglecting most of the bad news in recent couple of weeks) as the stock markets became so overextended. A daily spin-candle on the S&P500 futures might but doesn’t need to signal stronger profit taking. Today’s close (as it is a close for the week as well) will be important for this judgment.  

Market presses Greece again, euro down

The euro took heavy losses yesterday in the early European trade and didn’t manage to recover thereafter. It is becoming clear that investors didn’t buy the officials’ attempt to reduce a credit premium for Greece and while the aid package might mean that Greece wont default this year (although some in Germany still threaten to challenge any financial rescue), it will be under heavy pressure unless investors see a real improvement in a fiscal situation. In the early European trade the EURUSD tested yesterday’s low (1,3520) and should it succeed, the weekend’s gap will be covered and a medium term bullish signal eventually negated.       

Events to watch – BoA, GE and housing data

Bank of America is another financial institution to release reports this week (expected EPS at 9c) along with General Electric (16c, both before Wall Street opening). Investors are going to pay attention to a performance of BoA’s credit portfolio. On the macroeconomic front market awaits housing figures (8.30 ET, 14.30 CET; building permits expected at 630k and housing starts at 610k) and flash UM sentiment index (9.55 ET, 15.55 CET; expected at 74,7 pts.). While those figures are less relevant than data released on Wednesday and Thursday, they may gain importance, if yesterday’s reaction to the results presented by Google actually heralded a change in investor’s attitude.  

Przemysław Kwiecień Chief Economist

Disclaimer, investment risk warning
X-Trade Brokers Dom Maklerski S.A. does not take responsibility for investment decisions made under the influence of the information published on this website. more