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Good news but stocks down!

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by Peter Switzer

The European Central Bank cut interest rates and better than expected private sector jobs data in the USA turned up ahead of the official jobs report tomorrow but stock markets were down! How come? Blame it on trader mentality because both developments are pluses for a long-term rebound in stocks.

The Dow lost 47.15 points or 0.36% to 12,896.67 while the S&P 500 index gave up 6.44 points or 0.47% to 1,367.58. Meanwhile the Nasdaq just dodged negative territory.

Among the key S&P sectors, financials led the laggards, while techs gained.

In what was typical trader bull dust, markets fell when the ECB boss Mario Draghi threw in a negative picture of Europe as he cut interest rates. Well, der, that’s why rates had to come down. Stupidity has reigned in the EU for too long, which has hurt the collective economy there, but at least the Continent is now heading in the right direction.

The Eurozone official rate was lowered by 0.25% to 0.75%, while the Poms put their hand up to buy 50 billion pounds of bonds off the public, which will add to the UK’s money supply. And while this is a good step, it poses the question — why have they waited so long to take this most obvious action? Answer — they’re Poms! (Unfortunately their current cricket team is less cautious and sheepish!).

Better news was that China also cut rates and it means that the central banks of the world are taking the right measures to restore global growth by year’s end, when I have been expecting a big stock market rally, though it could come earlier as markets always get in early when they are buying or selling.

Also there was great news from the ADP National Employment Report, which focuses on private employers with the June number coming at 176,000 when the experts were expecting 105,000. Now this should be a good sign for tomorrow’s jobs report but there have been times when a good ADP number has been KO’d by big cuts in public sector jobs.

The economists’ guess for jobs is 90,000 in June after May reported a weak 69,000. However, there are some smarties predicting a better number tomorrow, despite the consensus figure being weak.

Some of this negative market reaction could be traders who want QE3, which will help stocks, and this could be come less likely if the jobs market recovers. The ADP report could point to a situation where QE3 is delayed or even cancelled, which would be a great economic sign for the USA but it still could disappoint short-term focused traders.

One worrying comment from Draghi was a reference to the ECB’s support for liquidity, which did not show enough enthusiasm for the task. This was dumb and not helpful. Even if he believed that, there was no value in telling the market this. Why give bond vigilantes any inside information?

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Published on: Friday, July 06, 2012