Jobs Report, More Earnings Ahead, But British Rate Cut Provides Early Lift

With earnings season waning, the market may get a new catalyst from the Bank of England, which cut rates Thursday for the first time since 2009.

The Bank of England cut interest rates to a record low of 0.25%, and also announced plans to purchase 10 billion pounds in corporate bonds, while expanding its quantitative easing program to 436 billion pounds from 375 pounds. In making its decision, the bank cited surveys of business activity that suggested slow growth in the second half of the year.

The rate cut, which comes a little over a month after the controversial Brexit vote that raised questions about Britain’s future economy, helped light a fire under European stocks, with many indices rising 1% or more following the news. The dollar rose against both the euro and the pound, and gold prices climbed a tad. Could a British rate cut work? The jury is out, but keep in mind the law of diminishing returns. The more rates go down, the less effect a rate cut tends to have.

Back here in the U.S., Friday’s jobs report looms, and consensus is for July jobs growth of 185,000, according to Briefing.com. That’s pretty close to the ADP July payrolls number of 179,000 released Wednesday.

Both the ADP number and consensus for the government data indicate slowing job growth from the 287,000 reported in June, though even a number in the consensus range would be very solid compared to the lackluster growth earlier in the year. As a comparison, average monthly jobs growth in Q2 was 147,000, well below the 200,000 or thereabouts that investors had grown accustomed to in 2015. The headline jobs numbers have been volatile of late, so it’s possible that could continue. Beyond the headline number, it’s important to see solid, quality jobs being created, the kind that could provide careers.

Even with attention on the jobs report, earnings season continues. Dozens of companies report today, among them Kellogg Company K, Chesapeake Energy Corporation CHK, Nokia Corp (ADR) NOK and MGM Resorts International MGM. Earnings haven’t been as bad as many thought they’d be, though they are still down from a year ago. So far, Q2 earnings for companies in the S&P 500 Index (SPX) are down just 2.2% year-over-year, according to S&P Global Market Intelligence. That may not sound too good, but it’s better than the negative 5% or worse earnings results predicted before the season started.

What’s also positive to see is that on their earnings calls, many CEOS have been talking more about how to grow their companies rather than how to streamline their business.

On the downside, Tesla Motors Inc TSLA reported earnings after Wednesday’s close, and the results were anything but electric. The company posted an adjusted net loss of $1.06 a share, more than double the loss of a year earlier, and well below the expected loss of $0.59 cents a share

From a technical standpoint, Wednesday appeared to be a positive day for the SPX, as it rallied back above a technical support level at 2159 and held that support into the close. The number to watch above the market is 2176.

Weekly jobless claims came in at 269,000, just above expectations for 265,000. Durable goods data are due Thursday as well. Oil prices were down a little, just below $41 a barrel.

Dollar, U.S. Bond Yields, Bounce From Recent Lows: Both the U.S. dollar and U.S. Treasury yields had been playing defense lately, but each perked up a little on Wednesday, and got an additional boost from the Bank of England’s decision Thursday to cut rates. A Fed rate hike would be a real catalyst for the dollar and yields, but odds of a September hike sit at just 12%, according to the futures market. A rise in interest rates would likely help the dollar because investors would see U.S. bonds as more attractive, and use dollars to buy them. And it’s looking like the Fed could be under pressure to raise rates to maintain its credibility. Strength in the yen, however, has pressured the dollar a bit lately. The dollar was down against the yen early Thursday.

Summertime Blues for Retailers: It’s been a tough week for retailers, and that’s reflected by the consumer discretionary sector, which was lagging the overall SPX significantly over the last few sessions. Some of the sad retail stories include Kohl’s Corporation KSS, Nordstrom, Inc. JWN, Staples, Inc. SPLS, and Macy’s Inc M, all of which were posting losses for the week to date. July sales appeared to slow for Macy’s and Kohl’s, according to an analyst research note this week. Some retailers may benefit in the next few weeks as back-to-school shopping activity picks up. Typically, Staples and Wal-Mart Stores, Inc. WMT see lots of young shoppers this time of year as kids (and their parents) prepare for the inevitable start of school in late August or early September.

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