Ahead of Wall Street - March 15, 2012 - Ahead of Wall Street
15 March 2012 - 8:03PM
Zacks
Thursday, March 15, 2012
A host of data this morning reconfirms the favorable view of the
domestic economic backdrop that has been taking hold for a while
now. We have further evidence of an improving U.S. labor market
from the initial Jobless Claims data. The wholesale inflation data
appears to show some pricing pressures building in the supply
chain, but there is no reason to doubt the Fed’s assuring comments
from last week that inflationary pressures will likely prove to be
temporary. We also got a better than expected read from the New
York Fed’s Empire State survey this morning, showing continued
momentum on the manufacturing side.
Initial Jobless Claims came in better than expected last week –
down 14K to 351K from 365K. The prior week’s tally modestly revised
up from the originally reported 362K level to 365K. The four-week
average, which smoothes out the week-to-week fluctuation, remained
unchanged at 355K. The strong Jobless Claims showing is consistent
with the labor market recovery that we witnessed with last Friday’s
non-farm payroll reading of 227K jobs gains in February. We should
continue to see 200K+ monthly jobs numbers in the coming months as
long as this trend continues, which is a huge positive for the U.S.
economy.
In other economic news this morning, the February Producer Price
Index (PPI) came in tad hotter on the ‘headline’ at up 0.4% vs. an
increase of 0.1% the month before. The ‘core’ reading, which strips
out the food and energy components, came in-line with expectations
at up 0.2% vs. an increase of 0.4% in January. We will get the
February CPI report tomorrow. The New York Fed’s Empire State
manufacturing survey for March came in better than expected,
showing continued resilience in the manufacturing sector. We will
be getting another regional manufacturing survey in the Philly Fed
report a little later.
In corporate news, Cisco (CSCO) announced the
acquisition of U.K.-based NDS Ltd, a developer of
set-top box software, for $4 billion. We also have weak guidance
from Guess (GES) and announcement of a secondary
equity offering from Capital One (COF) to fund a
recent acquisition.
The overall favorable domestic economic scene is showing up in the
break-down of the negative correlation between the stock market and
the exchange value of the greenback. Over the last few years,
dollar strength would always show up in weak equities. It is still
too early to draw firm conclusions, but the inverse relationship
appears to have started to reverse following last week’s Fed
meeting. The reason for this is that the positive U.S. economic
outlook more than offsets the drag that typically results for the
corporate sector from a strong dollar. The dollar’s strength this
time around is a function of the lower odds of further quantitative
easing from the Fed, resulting in the uptrend in treasury bond
yields over the last few days, and not the flight-to-safety trades
that we have typically been seeing over the last few years. This is
a big net positive, showing that equity investors are fine with a
world that isn’t propped up the Fed alone.
Sheraz Mian
Director of Research
CAPITAL ONE FIN (COF): Free Stock Analysis Report
CISCO SYSTEMS (CSCO): Free Stock Analysis Report
GUESS INC (GES): Free Stock Analysis Report
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