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Markets Focus on Jobs Data

Weekly jobless claims Thursday is the final piece of jobs-related data in a week when traders have been counting down to Friday’s March employment report.

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Importantly, Thursday is also the final trading day of the week for stocks, which saw a rocky session Wednesday after a Spanish bond auction fared poorly and traders continued to react negatively to Tuesday’s Fed meeting minutes.

The March jobs report is released Friday, and it will be a major point of focus Thursday, as traders view it as one last sign post on the economy for the Fed before its April 24/25 meeting. Economists expect about 205,000 jobs were created in March and that the unemployment rate stayed at 8.2 percent.

Claims are expected at 360,000 when they are released at 8:30 a.m. ET. A steady decline in claims has coincided with three months of 200,000 plus job growth, and markets are looking ahead to a fourth month of solid employment gains. Thursday is also the day chain stores report their March sales. Thomson Reuters expects the companies it tracks to show a 3.5 percent gain.

Stocks fell the most in a month Wednesday, with the Dow down 124 at 13,074, and the S&P 500 down 1 percent at 1,398.

Strategists said it will become more clear after Friday’s jobs report if the selloff is part of a bigger pull back, long expected as the S&P gained 32 percent since October. Some have also been expecting to see the “sell in May” effect again this year, where investors sell in May and stay out of the market.

Harris Private Bank CIO Jack Ablin said he did a study on the “sell in May” phenomena and found in a 60-year period that a $1,000 investment in stocks trading just during the May through October period would have turned into $969. That same $1,000, if invested only in November through April, would have become $22,000.

Ablin says he’s not ready to call the sell off part of something bigger yet. “It’s some sort of mental adjustment, but next week we get Alcoa and some first quarter earnings so we’ll see what happens. I do think it’s psychological right now,” he said.

The Fed’s minutes did not really venture into new territory, but the fact there was no promise of more easing impacted markets that have been building in some expectations for it. The Fed also did not say what it would do about “operation twist,” a program that expires in June. In that program, the Fed sells short term Treasurys, swapping them out for an equal number of long term Treasurys.

“The Fed’s a red herring. It will do what it’s going to do. The ‘put’ is still in place,” said Ablin. He said it’s tempting to consider taking profits in stocks, after he saw the S&P hit his target for the year last April and then retreat to end the year perfectly flat.

“I think what we’ll ultimately do is stay within equities and reduce our risk,” he said.

After rising on the Fed news Tuesday, the yield on the 10-year gave back some ground, and was at 2.24 percent in late trading Wednesday.

“People were looking to get bearish,” said CRT Capital’s David Ader. “We’ll probably firm up a little bit. Tomorrow’s going to be an inside day, and then we really need to take our cue from nonfarm payrolls.” The bond market is open until noon on Friday, and interest rate and stock index futures are also trading in a shortened session.

Ader said there wasn’t much new in the Fed minutes. “I think the market has had a chance to review those minutes... and if the odds were 50/50, they went to 45/55,” he said.

Oil Drill

Natural gas futures were down 2 percent Wednesday at $2.141 per million BTUs, as traders bet on another build in supply ahead of Thursday’s 10:30 a.m. ET government inventory data.

WTI oil on the Nymex lost 2.4 percent to $101.47 per barrel, its lowest level in a month, after a surprise build in oil stockpiles of 9 million barrels. It was the largest weekly increase in more than three years, and more than four times what the market was expecting.

The report also showed that oil stockpiles rose to 362.4 million barrels in the week ended March 30, for the highest level since June. U.S. production rose above six million barrels a day, for the first time since Feb. 2000.

The U.S. production is 7.3 percent higher than in the same week last year.

Barclays analysts, in a note, said the second quarter promises to be “calmer waters” for the oil market than the first quarter. The analysts said among the factors holding down oil prices are possible strategic stockpile releases and the unlikelihood of military escalation against Iran.

“There are still some wildcards: event risk outside Iran remains high; and positive demand shocks, including Japan plus a continuation of chronic non –OPEC weakness outside the Americas, are keeping fundamentals tight enough to provide some support,” they wrote.

They also noted that while gasoline demand is rising, the latest U.S. data also showed a surge in imports.

What Else to Watch

The Bank of England holds its rates meeting, ahead of the U.S. open. France expects to auction 7 to 8.5 billion euros in mid-to long term debt.

St. Louis Fed President James Bullard speaks at 9:10 a.m.

Follow Patti Domm on Twitter: @pattidomm

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