EmailIndependence Day came early for the equity market, which rallied sharply last week on the idea that it is on the cusp of breaking free form the chains of the Greek debt crisis and recurring reports showing a weakening in economic activity.
The bombs bursting in air last week were the successful austerity vote in the Greek parliament and the better-than-expected ISM Index for June. They gave proof through the night that the bull market and the U.S. economy were still there.
Just as our forefathers learned in 1776, however, the fight for freedom does not end with a single battle or the stroke of a pen. It is a continuous fight and this week's battle lines are drawn around Friday's release of the June Employment Situation report.
The latter is naturally labeled by some the "unemployment report." We understand their perspective, but that is a clear mislabeling considering the latest report showed there were nearly 140 million civilians employed in the U.S. versus nearly 14 million who were unemployed.
Still, the number of unemployed is far too high on both an absolute and historical basis, so it stands to reason that the number of unemployed workers is the focal point each month.
Expectations are low leading up to the Employment Situation report.
The Briefing.com consensus estimate calls for an increase of only 80,000 in nonfarm payrolls and 110,000 in nonfarm private payrolls. Those figures would mark improvement from May, which showed increases of 54,000 and 83,000, respectively, but they still aren't strong enough to bring down the unemployment rate in a meaningful way, if at all.
Prior to the government's payroll report, the ADP Employment Change report (Briefing.com consensus +60,000) will be released on Thursday in front of the latest initial claims report. The ADP number should help solidify expectations -- high or low -- ahead of the nonfarm payrolls report.
At the same time, the Greece situation hasn't been put entirely to rest. Standard & Poor's recently said the debt rollover plan for Greece proposed by France could be regarded as a selective default. However, news reports indicate the ECB has quieted some of the angst surrounding the S&P view with a declaration that it will continue to accept Greek bonds as collateral until all three ratings agencies assign a default designation.
The early indication from the futures market is that there won't be a lot of fireworks at the start of trading. The S&P futures are trading about 0.2% below fair value.
The seeming lack of conviction is probably more a case of wait-and-see than anything else. The strength of last week's rally caught many participants by surprise, and now they are waiting to see if it will be sustained or if there will be a concerted move to sell into the strength.
In other words, many participants might be inclined to keep their gunpowder dry until Friday.
--Patrick J. O'Hare, Briefing.com
Patrick J. O'Hare is the Chief Market Analyst for Briefing Research, Briefing.com's institutional research service. To request a free trial please email researchsales@briefing.com.
