Stocks will have to look past the partisan noise coming out of Washington and remain focused on the real news of the day. And we have no shortage of real news, both from the U.S. economy and also from across the pond.
We have a positive weekly Jobless Claims report and better-than-expected same-store sales results for March. Both of these reports should help sustain the improving outlook for the U.S. recovery. But stocks will likely behave inline with the trend of the last few days.
Weekly Jobless Claims fell by 10,000 to 382,000 last week, while the four-week average dropped by more than 5700 to 389,500. Both of these numbers have now consistently remained under the 400,000 level for weeks now, indicating the underlying improving trend in the labor market.
We know from history that the pace of jobs creation picks up significantly as the claims data falls below the 400,000 level. And we have been seeing this trend play out in the last two monthly non-farm payroll reports. Continuation of this trend will put the economic recovery on a more sustainable level.
In Europe, the central bank acted as expected by raising interest rates this morning. Portugal also behaved as expected by throwing in the towel and asking for a bailout.
As I have been saying here in recent days, the Portuguese bailout question was more a matter of ‘when’ and not ‘if.’ The only surprise was the timing, as I expected them to ask for it after the June elections. But yesterday’s T-Bill auction likely made them realize that sustaining a go-it-alone strategy for even two months may not be without risks.
While there are no surprises at what Portugal and the ECB did, the market’s behavior towards Spain is a bit surprising, in my view. There does not seem to be any renewed pressure on Spain at this stage, at least judging from spreads on Spanish government bonds and credit default swap rates.
There is no doubt that Spain, the fourth largest economy in the EU, is more dynamic and better run than Greece, Ireland, and Portugal. But the market’s sanguine take on the country’s prospects may be on the optimistic side, in my view.