December chain store sales and weekly jobless claims top the list of what traders will be watching Thursday.
The monthly reports from retailers include the important holiday and post-holiday shopping season. Thomson Reuters expects its same store sales index to show 3.4 percent growth in December, over last December's 2.9 percent gain. Discounters are expected to see the best results, up 5 percent, followed by department stores, up 3.9 percent and teen apparel, up 3.6 percent.
Jobless claims take on a heightened importance after Wednesday's surprisingly strong ADP private sector jobs report, which showed an increase of 297,000 jobs in December. The ADP report, while not a reliable barometer for monthly employment data, helped drive stocks and the dollar higher, and bond prices lower Wednesday. The number also encouraged a few economists to bump their forecasts for Friday's government jobs report. Reuters reported that the consensus rose from 140,000 non farm payrolls to 175,000, after the ADP report.
The weekly claims are not part of the calculation for the government's December report, but they will be watched closely to see if the trend continues to show a decline in new claims. Last week's claims were at 388,000, a 29-month low.
"We're expecting 410,000 and so we think the 388,000 was perhaps a bit distorted, but again here we do think the trend is downward in jobless claim," said Dean Maki, chief U.S. economist at Barclays Capital.
Maki said he does not rely on the ADP report when estimating non farm payrolls, and he expects growth of 150,000 jobs for December, in total. Some economists say the signs point to a turn in hiring in December. Maki said it's not clear when the turn will be, but it's likely imminent.
In a note late Wednesday, Goldman Sachs economists said the markets may have become overly optimistic about Friday's employment report and that they have not yet raised their non farm payrolls estimate of 100,000. They also say that a meaningful decline in new jobless claims, like that of the last several months, is often a sign of accelerating employment growth over the subsequent year.
"So we think that a meaningful pickup in payroll growth is more likely a matter of "when" than "if." Could the "when" be the December payroll report, to be released this Friday? It's certainly possible," they wrote. The economists also pointed out that November's disappointing build of just 50,000 private sector jobs broke a trend that had averaged 133,000 a month between July and October.
So far in this first week of January, there's been a shakeout in commodities, a rise in rates, and a strengthening in the dollar. Even in the face of the stronger dollar, stocks have held their ground.
TheDow Wednesday gained 31 to 11,722, and theNasdaq climbed 20 to 2702. The 10-year Treasury yield rose to 3.48 percent, the biggest one day move in about two weeks. The dollar jumped nearly a percent.
Stitching a pattern from the first few days of the year is tough, but traders are already pointing to the recent parallel moves higher in stocks and the dollar.
"It's nice to see the dollar doing a little better here on what amounts to good U.S. news. We've had episodes in the last couple of years where the dollar does well when the world is falling apart. So, it makes for an nice change. I think the non farm payrolls have to deliver what the ADP number promised," said Alan Ruskin, chief currency strategist at Deutsche Bank.
Ruskin said he expects the greenback to perform better in 2011. "It has the makings of a better year than 2010, and better than 2009 and 2008, for that matter," he said.
Jack Ablin, chief investment officer at Harris Private Bank, said he's been watching the corresponding move in the dollar and stocks with interest. "I think that's a new trend we're establishing. It would seem that until recently, the higher dollar has been the odd man out...now it seems we could have a higher dollar, stronger U.S. economy. We're starting to see that now over the last week. We're seeing stronger dollar, stronger stock market, higher interest rates, all simultaneously. I think that's the rebound story," he said.
"With this new trade, a lot depends on what happens Friday, but I will say that ADP has underestimated payrolls 11 of the last 12 months, except for last month," he said.
Wells Capital Management chief investment strategist James Paulsen thinks it's too early to call a trend in the strengthening dollar and rising stock market. The more recent trend has been a falling dollar, and a corresponding move higher in the stock market and risk assets in general.
"We've had this super negative correlation. It's never been that bad since the dollar started floating in he 1970s.. Why is this? The reason it's been there is because of the crisis premium in the dollar, and the dollar has been going up most of the time in the last three years when there's increased fears of the reemerging crisis. It has nothing to do with the relation with the stock market. It's only because they have a relationship to each other. It's only because one is a "risk on"and one is a "risk off" trade," he said.
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