Daily Agenda: Bank of Korea Cuts Rates; Advance Auto Parts, JCP, Wal-Mart Report Earnings

Abysmal growth and inflation data from Europe paint dull macro picture and U.S. initial claims data put spotlight on the labor market.


Market reaction has been remarkably muted to disappointing data from Europe and Japan in recent sessions. Even geopolitical concerns, including the death of Brazilian presidential candidate Eduardo Campos, Russian military convoys barreling toward the eastern Ukraine border and talk of increased numbers of U.S. boots on the ground in Iraq has failed to spark any major market jitter. In fact, investor sentiment on the U.S. equity markets appears to have returned to stable ground from trading last week. In comments on the S&P 500 this morning Société Générale strategist Kit Juckes notes, “the market has clawed its way back to 1946. Another 10-point rally from here, through the 50-day average, would have people talk of another new high being made soon.” Put simply, rather than risk on/risk off, “wait-and-see” appears to be the order of the day.

Growth in Europe flatlines; inflation barely there. GDP data for the euro zone in the second quarter came in at a completely flat 0 percent from the first three months of the year, versus consensus forecasts for 0.1 percent stemming from moderated growth levels in the primary EU economies. Euro zone consumer inflation data for July also disappointed, with 0.4 percent for July, well below European Central Bank target levels. Persistent low inflation and sluggish growth now provide a grim backdrop to tensions in eastern Ukraine in terms of investors’ views on euro-denominated assets.

Weekly U.S. jobless claims released today. The U.S. Labor Department will release numbers on initial unemployment claims for the week at 8:30 am. Expectations are for a modest uptick in the ranks of the newly unemployed in the wake of the postcrisis low achieved in late July. At 294,000 the four-week moving average for new claims last week achieved the lowest measure since February 2006.

Bank of Korea cuts rates. The Bank of Korea lowered the benchmark seven-day repurchase rate to 2.25 percent — a 25-basis point reduction that marks the first change in policy rates at the central bank in 15 months and the lowest level since 2010. Bank Governor Lee Ju Yeol is shifting policy stance in support of President Park Geun-hye’s 12 trillion-won ($88.9 billion) stimulus package designed to kick-start growth levels burdened by fragile property markets in the nation.

U.S. inflation expected to rise. Monthly business survey data from the Federal Reserve Bank of Atlanta saw expectations for inflation 12 months from now rising to 2 percent, with a majority of respondents reporting that current sales are normal. A minority did report positive profit margins, however.

Second-quarter earnings reporting season winds down. U.S. equities reporting second-quarter earnings today include companies Advance Auto Parts, J.C. Penney and Wal-Mart. In light of yesterday’s disappointing U.S. retail sales figures for July, J.C. Penney and other consumer-discretionary sector companies face significant challenges: Labor Department spending data registered flat for the month, the fourth consecutive reading that was below consensus forecasts.


Portfolio Perspective: Take This Job And...Nicholas Colas, ConvergEx Group

Tuesday’s Bureau of Labor Statistics’ JOLTS (Job Openings and Labor Turnover Survey) report for June 2014 showed a notable improvement in the domestic employment market. The number of job openings reached a 13-year high, while hiring picked up after falling in May. Additionally, the number of voluntary separations rose for a third month in a row, signaling worker confidence in their abilities to find higher-paying jobs. That puts ConvergEx’s “Take this job and shove it” indicator in solidly positive territory, signaling the real possibility of further gains in consumer confidence over the coming months. Let’s not forget that Fed Chair Janet Yellen favors JOLTS data as a useful measure of the U.S. labor market, so the upbeat release will no doubt get some airplay at the Jackson Hole Economic Symposium next week.

Bear in mind, however, that JOLTS data is notoriously choppy. And even with strong numbers across the board, these trends will need to progress and solidify in future reports to force a move in interest rates.

Nicholas Colas is chief market strategist at ConvergEx Group, a New York–based global brokerage firm whose clientele includes institutional investors and financial intermediaries.