Capital markets around the world can be excused for feeling restless today.
- Protests in Egypt persist after President Morsi defiantly rejected the Egyptian military's ultimatum to step aside. Oil prices have pushed above $101/bbl on the heels of that news.
- Portugal has seen several cabinet ministers resign, raising questions about the viability of the government and the austerity program there.
- There is chatter Greece could see its financial aid withheld; and
- The non-manufacturing Services PMI report in China slipped to a nine-month low in June (to 53.9 from 54.3).
Before the start of trading in the US, there was already trouble brewing in Africa, Europe, and Asia. That trouble has transferred to the US, which is indicated to open the session lower by approximately 0.4% -- and that's with some good employment news out of the US.
Specifically, the ADP Employment Change report for June showed an estimated 188,000 jobs were added in the private sector versus 134,000 in the prior month. The Briefing.com consensus estimate was pegged at 150,000.
The gain in June is fairly consistent with the increase in nonfarm payrolls of late, so it isn't likely to shift economists' expectations ahead of the government's employment report on Friday. Similarly, the latest initial claims data is also in-line with recent trends.
Claims for the week ending June 29 slipped by 5,000 to 343,000 (Briefing.com consensus 348,000) while continuing claims for the week ending June 22 dropped by 54,000 to 2.933 mln (Briefing.com consensus 2.955 mln). The initial claims level is in a zone that has been indicative of nonfarm payrolls rising in the range of 150,000 to 200,000, so no real surprises here in that the consensus estimate for nonfarm payrolls is 166,000.
The latter point aside, the ADP and the initial claims data together point to a firming in labor market conditions that tilts more toward the encouraging side of things than the disappointing side of things.
That understanding helped the S&P futures recover some early losses.
The other report out this morning was the May trade balance. It wasn't as encouraging. The deficit widened to $45.0 bln in May from $40.1 bln in April. The widening occurred with exports declining by $0.5 bln and imports increasing by $4.4 bln. A decent-sized jump in imports of crude oil and petroleum products, cell phones, and autos/parts accounted for the import influx.
The widening deficit will be a drag on Q2 GDP forecasts. Even so, the imbalance should contribute to a sense that demand in the US is stronger at the moment than other parts of the world.
What's going on in "other parts of the world" today, however, appears to be an early deterrent for buyers, and is also largely overshadowing the news that the Obama Administration has delayed the employer mandate for health care coverage by a year to 2015.
It wouldn't surprise us to see an early comeback attempt, but with the market closed tomorrow for the Fourth of July and uncertainty heating up in Egypt, the eurozone, and China, we could understand why participants wouldn't want to press buying efforts too strongly today.
As a reminder, the stock market closes early today at 1:00 p.m. ET.