Markets are looking ahead to Friday's June employment report, and there is little optimism the number will show anything more than a slight gain.
A sour mood continues to grip stocks, which drifted much of Wednesday before selling off in the second quarter's final hour of trading. The Dow finished down 96 at 9774, and the S&P 500 closed down 10 points at 1030, a new low for the year.
ADP's private sector payroll report set a negative tone early in the day, when it showed a gain of only 13,000 jobs in June. Even though the number has been trailing the actual employment report, traders became increasingly negative on Friday's government jobs report.
Economists expect a loss of 125,000 non farm payrolls, and within that number, they expect a gain of 110,000 private sector jobs, compared to 41,000 last month. The balance is the reduction in temporary census workers, which helped pump up May's non farm payrolls to 431,000.
Ahead of that jobs report, markets will be watching Thursday's 8:30 a.m. weekly jobless claims, expected at around 450,000. The ISM manufacturing survey; pending home sales and factory orders are also reported at 10 a.m. Auto makers will report monthly sales throughout the day.
Traders will also pay attention to China's purchasing managers data, expected to show a slight decline when reported late Wednesday New York time. It is expected to be 53.9, down from 53.2 A separate HSBC purchasing managers report is also anticipated late Wednesday.
"This is problematic," said Brian Dolan of GFT Forex of Wednesday's late day sell off. "I think we'll kind of consolidate. The market is pricing in negativity surrounding the jobs report. We'll find a sort of equilibrium shortly and probably consolidate and trade in a range."
'We've got to get a number north of 150,000 on the private payrolls in order to boost sentiment," he said. The number is also reported on the Friday before the long July 4 holiday weekend, which could mean a lightly traded and choppy market.
FCIC Confronts Derivatives
Wednesday's data also included the Chicago Purchasing Managers report, which was lower at 59.1 but was slightly better than expected.
"This week was supposed to be a negative for risk, and it seems like we can't get out of the negative mindset regardless of what positives come along," said Dolan.
Win Thin, currency strategist at Brown Brothers Harriman, said the European Central Bank's report early Wednesday that banks borrowed less money than expected in a new three month funding facility was a positive for the euro. The ECB said it lent banks 131.9 billion euros, well below the upwards of 200 billion euros some had expected. The facility replaces an expiring 12 -month facility under which banks had borrowed 442 billion euros.
Moody's later in the day said its Aaa rating on Spain is on review for possible downgrade. Standard and Poor's and Fitch have previously downgraded the country's debt.
"This whole Spain thing upset that. It wasn't a surprise, but just a reminder that things aren't getting better in Europe. They're still getting worse," said Thin. The euro was lower at $1.2231 late in the day after trading up on the ECB news earlier.
Treasurys, which have seen a sharp drop in yields this week, continued to see 10-year and 30-year yields fall. The 10-year was at 2.941 percent late in the day.
What Else to Watch
The Financial Crisis Inquiry Commission continues to meet Thursday and will focus on the role of derivatives in the financial crisis. Witnesses include Goldman Sachs CFO David Viniar, and Stephen Bensinger and Elias Habayeb, both former CFO's of AIG.
Former Fed Chairman Alan Greenspan is a guest on "Squawk Box" at 7 a.m. Eastern time.
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