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After the Fourth, It's All About Jobs for This Market

After the July fourth holiday, Wall Street’s traders will be back at their desks Thursday, watching jobs-related data amid rising anxiety about Friday’s upcoming June employment report.

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Robert Kohlhuber | Photodisc | Getty Images
fireworks

There are three pieces of employment-related data Thursday. First, ADP’s private-sector employment report is released at 8:15 a.m. ET and is expected to show 108,000 private sector jobs were added in June. There are also weekly jobless claims data at 8:30 a.m., expected at 385,000, just about the same as last week. The ADP number is looked at as a kind of preview of the employment report, although it often does not correlate.

Claims are being watched because in recent weeks, they have been elevated as other signs of economic slowing have picked up. The final piece of jobs information Thursday comes in the ISM nonmanufacturing survey, expected at 10 a.m. It should show employment activity in the services sector.

“Claims have been creeping up. If the claims numbers surprise to the downside, and are lower than expected, then the market will be more inclined to look beyond a weak employment number,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank.

Economists expect the government’s June jobs report Friday to show that just 95,000 new jobs were added, a sluggish number but better than May’s 69,000 payrolls. The shockingly low May jobs number was followed by a string of other weak data and now, expectations are low that June will produce much better results.

“I think the good news is we’re getting close to the point where the market is going to be pleasantly surprised with the data being better than expected. We see that in the economic surprise index,” said LaVorgna, who added that it may be nearing an inflection point.

The weak data are also supporting the view that the Fed may decide to carry out a new program of quantitative easingif things get worse, and traders see poor jobs data as the biggest potential catalyst. That view has helped support stocks.

LaVorgna is not so optimistic about Friday’s jobs number and is expecting 75,000 nonfarm payrolls. He said he is cautious in the near term and would not be surprised to see the payrolls lower than he has forecast because of seasonal patterns. He noted a similar slowdown in the last two summers, but he said the developments in Europe last week may ultimately help the economy since they should boost the stock market.

John Moore | Getty Images

“I think a lot of economic data are being influenced by financial markets which, in turn, are being influenced by events in Europe,” he said. The expectations were low for last week’s EU summit, but markets were positively surprised.

“I think the banking union is one small step. The movement toward a more integrated banking system is one step closer to fiscal unity,” he said. U.S. traders are also watching the European Central BankThursday, which holds a rates meeting ahead of the Wall Street open.

Traders expect a quarter-point rate cut. “If the ECB delivers, I think that’s obviously a big event. If the ECB delivers, I think that’s going to cause more short-covering in the euro, and I think you’ll see markets move higher,” said LaVorgna.

The ECB meeting is followed by a press briefing by ECB President Mario Draghi. “If there’s any surprise, it’s that they don’t do anything,” said Win Thin, senior currency strategist at Brown Brothers Harriman.

Stocks closed higher Tuesday, with the Dow up 72 at 12,943, after May factory orders and June auto salesboth surprised to the upside. That follows a disappointing ISM manufacturing report Monday that showed a contraction in the manufacturing sector for the first time since June, 2009. Surprisingly, the employment component in the ISM manufacturing index held up at 56.5, while the index was at 49.7.

Besides the economic reports, chain stores report monthly sales for June on Thursday. Expectations are low for June, a month when consumers were stung by still-high gasoline prices. Thomson Reuters/IBES expects sales to increase 0.5 percent for the stores it follows. Drug stores are expected to see a sales decline of 8.2 percent. If those stores were excluded, the June sales estimates would be for a 2.4-percent gain. The best-performing stores are expected to be apparel, up 3.4 percent.

Boiling Oil

Oil priceshave been on the rise, and Nymex crude jumped more than 4 percent Tuesday to $87.66 a barrel, and Brent raced back above $100. Nymex crude will trade electronically Wednesday. Tensions around Iran’s threat to close the Strait of Hormuz could make that session more active than normal for a holiday. Iran Tuesday also said it test fired several ballistic missiles including a long range missile that could reach Israel or southern Europe.

European sanctions against Iran went into effect last Sunday. Technical experts were in Turkey Tuesday for discussions on the Iranian nuclear program, after three rounds of negations between Iran and six world powers failed to make any progress.

“Nothing’s really coming out of them,” said John Kilduff of Again Capital. “It’s more about the rhetoric and how Iran is really cornered here. At some point, they are either going to strike out or try to get a deal. Right now, the market’s taking them at their word about stirring up something in the Strait of Hormuz.”

The energy sector was the best performer Tuesday, helping to propel the stock market with a 2.2 percent gain, as oil rose.

What to Watch

Thursday

Monthly chain store sales

0730 am Challenger job cut report

0745 am European Central Bank rates decision

0815 am ADP employment

0830 am Initial claims

1000 am ISM nonmanufacturing

Friday

0830 am Employment report

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Questions? Comments? Email us at marketinsider@cnbc.com

  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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  • JeeYeon Park is a writer for CNBC.com. Follow her on Twitter: @JeeYeonParkCNBC

  • Rick Santelli joined CNBC Business News as an on-air editor in 1999, reporting live from the floor of the Chicago Board of Trade.

  • Senior Producer at CNBC's Breaking News Desk.