On Thursday non-farm ADP payroll figures indicated that the private sector added 201,000 jobs in August, beating expectations of 142,000. In addition, new jobless claims fell last week by 12,000 to a seasonally adjusted 365,000. The ISM non-manufacturing purchasing manager’s index was also encouraging, printing at 53.7 compared to 52.6 in July, indicating increased optimism. On Friday at 8:30am, the U.S. Bureau of Labor Statistics will release unemployment figures for the month of August. The July unemployment rate was 8.3%, and it is expected that this figure will have remained the same.
Another figure to keep in mind is the U-6 unemployment figure, which in July was 15%. This number comes closer to accurately depicting the country’s jobs picture. Unlike the 8.3% figure, the U-6 includes those who are unemployed who have stopped looking for work, and also those who underemployed—those who are employed part-time but want full-time work. Overall, sentiment on Wall Street is sunny, after Federal Reserve Chairman Ben Bernanke indicated last week in Jackson Hole, Wyoming that the Fed would be willing to act via more quantitative easing (asset purchases) if the pace of the recovery remains sluggish.
Stocks also received a major boost Thursday morning, as European Central Bank Chairman Mario Draghi announced the ECB would commence an “unlimited” bond purchasing program through Outright Market Transactions “to address severe distortions in government bond markets which originate from, in particular, unfounded fears on the part of investors of the reversibility of the euro.” The decision comes as investors continue to question the viability of the Euro zone going forward, and as bond yields in the so-called PIIGS countries (Portugal, Ireland, Italy, Greece, and Spain) remain high. Last week, Spanish bonds imploded, with the 10-year flirting with 7% before retreating to 6% by Thursday at noontime. The ECB also held its minimum bid rate steady at a low 0.75%.
Equities are expected to continue rising on the heels of Draghi’s announcement, which that has put downward pressure on bond rates as investors scramble for yield. Although the ECB’s move indicates that it’s willing to act in the face of a potential crisis, it is unclear if this will shore up any real confidence in the long run. What is clear, is that the ECB is far from allaying fears of a Euro exit by one of its weaker economies at some point down the road.