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Payroll Growth Fails to Live Up to Market Expectations


Today's financial recap and tomorrow's financial outlook.

US equities started the day down but climbed their way back to positive as the day progressed. Investors were clearly waiting for the result of the ECB meeting scheduled for tomorrow morning, although there was very substantial activity in Euribor and Fed Funds futures markets. The S&P 500 (INDEXSP:.INX) closed up 0.13% with consumer discretionary stocks leading. Small-cap and tech stocks both outperformed. European and Chinese stocks were broadly lower.

Copper prices fell overnight due to a report from China that the government was launching an investigation to determine whether or not warehouse receipts were accurate and if the metal had been rehypothecated numerous times.

Life insurance stocks continued to outperform as interest rates continued to creep higher. The sector was boosted by news that Dai-ichi Life Insurance (TYO:8750) was pushing ahead with its purchase of Protective Life (NYSE:PL) for $5.7 billion or about $72 per share, a 38% premium over its closing price on May 30. Chinese solar stocks were weaker following news that the US Fair Trade Commission would crack down on the group, while US solar stocks received a boost.

There were three notable economic data reports today. The ADP private payrolls report saw net jobs increase by 179,000 in May, worse than the 210,000 expected and down from a lower revised 215,000 last month. April's US trade balance widened to -$47.2 billion, worse than the -$40.8 billion expected and accompanied by a -$3.8 billion revision lower for the prior month. The real goods trade deficit is the largest in more than six years. The report caused GDP tracking estimates to be lowered by 0.4% for the second quarter and 0.2% for the first. Goldman Sachs now forecasts 3.2% and -1.2% growth for the respective quarters. Lastly, the ISM services index continued to show strong growth, rising to 56.3 from 55.2 in April.

Tomorrow's Financial Outlook

The only economic data point for tomorrow is weekly jobless claims. Claims are expected to rise to 310,000 from 300,000 in the week prior. The four-week moving average currently stands at 311,500. Also, the Fed will release the Change in Net Worth of Households for the first quarter.

The most important event for risk assets tomorrow is the ECB rate decision. The decision will be released at 12:45 p.m. local time (7:45 a.m. EDT) followed by a press conference from President Mario Draghi 45 minutes later. Fifty-eight of 60 economists expect that the central bank will lower its main policy rate by at least 10bps and make similar cuts to deposit rates. In addition, many economists think the bank will announce other credit-enhancing measures such as direct loan financing to banks, long-term refinancing loans, or purchases of asset-backed securities. The euro has sold off against other major currencies, and European equities and sovereign bonds have all rallied substantially in anticipation of this event.

Joy Global (NYSE:JOY), Ciena (NYSE:CIEN), Vail Resorts (NYSE:VAIL), and Verifone Systems (NYSE:PAY) are scheduled to report earnings.

Twitter: @Minyanville

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