Wednesday started the monthly employment data parade with news on announced job-cuts. However, the most important news of the day came from ISM, with its indicator flashing red for the service sector of the economy. Overseas, a ratings downgrade of Portugal and interest rate hike in China offered the market all the more reason for caution. However, on the stock side, Facebook is about to unveil its partnership with Skype, and the market seems to be rewarding the entire tech sector as a result. The SPDR Select Technology Fund (NYSE: XLK) is up a half point, but the Dow is defying gravity as well, up a half a point too today.
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Job Cuts Challenger Gray & Christmas today reported that Announced Corporate Layoffs increased for the second consecutive month in June. Reported job-cuts rose to 41,432 in June, up from 37,135 in May and 36,490 in April. The level of cuts remains moderate, though this recent trend is certainly somewhat concerning. That said, the mid-year total of 245,806 firings was the lowest in 11 years. ADP’s Private Employment Report has been moved to Thursday due to the holiday shortened week.
Service Sector Woes The most influential economic report of the day arrived from the Institute for Supply Management (ISM). ISM reported its Non-Manufacturing Index for the month of June. The service sector metric showed deterioration in the critical segment, as it declined to 53.3% in June, down from 54.6% in May. Economists thought the index would approximate 54.0%, but the depth of decline was significantly worse. Given its proximity to the 50 mark, which separates economic expansion from contraction, the market had good enough reason to worry today.
Same-Store Sales Redbook today reported June same-store sales rose 0.9%. For the week ending July 2, Redbook reported same-store sales rose 5.2% against the prior year. The International Council of Shopping Centers (ICSC) reported that sales increased 3.5% against the year ago period, and moved 1.5% higher against the immediately preceding week.
Weekly Mortgage Activity After declining the week before despite a moderation in contracted mortgage rates, mortgage activity slipped again this week. The Mortgage Bankers Association (MBA) reported its Market Composite Index fell 5.2% on a seasonally adjusted basis through the week ending July 1. However, the Purchase Index, which measures mortgage applications tied to home purchases, increased 4.8%. The Refinance Index fell for the third straight week, dropping 9.2% against the immediately preceding week. There was a large increase in contracted fixed rate mortgage rates behind the drop, as the 30-year fixed rate mortgage rate moved up to 4.69% from 4.46%, based on contract signings.
China Raised Interest Rates The Chinese Central Bank raised its key interest rate for the fifth time in nine months today. China has a different sort of problem than we do, for now. The Chinese are contending with uncontained asset market growth accompanied by wildly rising prices, and so our rivals on the other side of the earth are employing different monetary and fiscal measures than we are these days, with our quantitative easing on top of bottom dollar interest rates.
Portuguese Ratings Downgrade Moody’s (NYSE: MCO) downgraded Portugal’s sovereign debt rating to junk bond status from investment grade. The ratings agency said there’s great risk Portugal will need another bailout. This of course followed yesterday’s news that Standard & Poor’s (NYSE: MHP) judged the latest discussed European banking measures with regard to Greece as an effective default of Greek debt. Needless to say, the euro is not holding up well this day, dropping 0.7% to its lowest in a week at $1.4322 (11:30 EDT).
DC Doings In DC, President Obama has a Twitter town hall planned, and he’ll be talking about jobs and the economy. Senate Democrats are meeting with the president and vice president today to discuss the debt ceiling. The FDIC is holding a meeting to consider how it will wield its new powers to liquidate large failing financials. The EPA will likely issue a ruling with regard to limiting interstate toxic emissions from power plants.
Everyone is waiting on Facebook and its big announcement. Highly touted, Facebook’s Mark Zuckerberg will today make an "awesome" announcement. The rumor wire is churning that Facebook will partner with Skype to provide video conferencing on Facebook. Google (Nasdaq: GOOG) only just unveiled its Google+ social networking effort. GOOG is up 1% today, and we expect Skype and Facebook shares would be doing well if we could trade them publicly.
Microsoft (Nasdaq: MSFT) is working with Baidu (Nasdaq: BIDU) to provide English language search results in China through its Bing search engine. All the usual safeguards will of course remain in place to prevent liberty breaking out. Microsoft is up about a point today, with Baidu unchanged.
Honda Motors (NYSE: HMC), still suffering from the earthquake, reported today that its sales into China fell 29.9% in June against the prior year. Its first half sales were down 12.3%. At the start of the year Honda had forecast Chinese market growth of 12%, but like Toyota Motors (NYSE: TM), it is now hampered by production issues tied to the earthquake. Honda and Toyota shares are up nearly 1% today, as either the news was better than expected or Honda offered other reason for hope in its release today.
Netflix (Nasdaq: NFLX) is heading south of the border, expanding into Latin America. Netflix launched in Canada last year, and is targeting 43 new markets across Central and South America and the Caribbean. NFLX is down fractionally at this hour after an immediate jump on the news yesterday.
Walgreen (NYSE: WAG) reported a 4.8% increase in its June same-store sales, which was above the 2.9% expected by analysts surveyed by Thomson Reuters. Growth was attributed to pharmacy and front of the store offerings. WAG is up more than a percentage point on the news.
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