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This is the next thing markets are worried about

With little to shake them, markets are already fixated on Friday's April employment report, amid concerns economic growth is just not strong enough.

But first, the weekly report on unemployment claims is released at 8:30 a.m. EDT on Thursday, and is expected to show 260,000 new claims, up slightly from the week earlier, consistent with a recent low trend. But the surprise miss in ADP payrolls Wednesday has the market mentally downgrading expectations for the Friday employment report even if economists have not cut their forecasts. According to Reuters, 202,000 nonfarm payrolls for April are expected, down slightly from 215,000 in March.

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Traders work on the floor of the New York Stock Exchange.
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Traders work on the floor of the New York Stock Exchange.

"(Thursday) is more of a time out ahead of Friday. The thing with Friday is there's little reason we're going to get some big upside surprise, but if we get a miss are we going to celebrate because the Fed is not going to raise rates?" said Peter Boockvar, chief market strategist with Lindsey Group. "The market is not expecting the Fed to raise rates. We have to realize we could reach a time when the market is going to realize bad news is bad news."

The jobs report does not have that much of a correlation with the ADP payrolls, which came in at 156,000 for April - 40,000 below expectations. Psychologically, it was a hit because worries about the global economy have been filtering into the market recently and equities have been selling off.

"I don't want to make too much of one number because we could always bounce back…it would fit the theme of slowing growth. It would fit the theme of 1 handle on GDP (growth) rather than 2, and it's something we have to watch. The consumer is the only thing keeping the economy in expansion," said Boockvar.

The S&P 500 ended Wednesday down 12 points at 2,051, and the Nasdaq was down 0.8 percent at 4,725, now 4.7 percent off its recent April 18 high. As stocks sold off, Treasury prices moved higher and yields fell. The 2-year Wednesday touched a low of about 0.74 percent. The dollar index also moved higher.

Boockvar pointed out that the S&P barely held 2050, a key level. "Technically, it got to the upper end of a more-than-one-year trading range. That met up with a slowing economy, earnings that continue to contract, central banks that are losing control and valuations that are back to being expensive," said Boockvar.

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The weak stock market helped lift bond prices. "I think the market is in reverse course form the reversing course… we went from this reflation trade to ok, maybe June is in play, and we broke the technicals in seven straight days of lows and now we're up four straight days of gains, and now global growth fears are back," said Justin Lederer, rate strategist at Cantor Fitzgerald. Lederer said Fed officials keep pressing that rate hikes are possible but the markets don't believe them. The next Fed meeting is June 14 and 15.

"I think if you see a good (jobs) number I think the market goes down a little bit. I would expect a drastic move down, and I think people would talk about June," for a rate hike, said Lederer. "June is such a hard wager right now. It's right here, it's a few weeks away. Twos are trading at 0.74, and you have the Brexit vote and you have so many global concerns, but you can't write it off."

Lederer pointed out that Fed speakers continue to say they could hike rates. "I'm hard pressed to think this payroll number would even change June," he said.

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Fed speakers are on the agenda again Thursday. St. Louis Fed President James Bullard speaks at 11:50 a.m. EDT. Then San Francisco Fed President John Williams appears on CNBC at 1:40 p.m., from the Hoover Institution's International Monetary Stability Conference. Bullard and Williams also join a panel at the conference with Atlanta Fed President Dennis Lockhart and Dallas Fed President Rob Kaplan.

And while traders say the markets did not move on it, they are watching the U.S. presidential election. Donald Trump became the presumptive Republican candidate Wednesday after he won Indiana Tuesday, and both Ted Cruz and John Kasich dropped out of the race.

"I think now that we know that Trump has it, people are going to wait to see who does he surround himself with. Now it's game time. Does he worry people with some nonconventional picks? People need to see if he's going to moderate some of his campaign ideas or is he going to sound as looney as he sometimes sounds? said Boockvar. "I think it's still early for the market to worry about it, but it does add another level of worry about where this all goes."

Earnings expected Thursday morning EDT include Alibaba, Merck, Occidental Petroleum, Chesapeake Energy, Kellogg, Martin Marietta Materials, Church and Dwight, AMC Networks, Time Inc, SeaWorld, Apache Petroleum, Fortress Investment and Becton Dickinson before the bell. Activision Blizzard, News Corp, Wynn Resorts, EOG Resources, Fiserv, Motorola Solutions, Dreamworks Animation, Yelp, ElPollo Loco, FireEye, GoPro and Tableau Software report after the closing bell.

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