MarketView for September 5

Summary

It was another uneventful day of thin trading on Wednesday, with many on the Street unwilling to do any serious investing ahead of Thursday’s crucial meeting of the European Central Bank, which could announce new policies to help contain the euro zone's debt crisis. Despite rumors and opinions that European policymakers planned to unveil a bond-buying program designed to bring down the sovereign borrowing costs in euro zone economies, it was not enough to excite investors.

Shares opened lower, hurt by the FedEx announcement late Tuesday that it was reducing its quarterly earnings outlook on weakness in the global economy. FedEx is considered an economic bellwether because of its role as the second largest world shipping company. The stock fell 2 percent to close at $85.80.

Equities seesawed between positive and negative territory throughout the session. The words from various news agencies indicated that the ECB was ready to waive seniority status on government bonds it buys under a new program which it is set to agree on at Thursday's Governing Council meeting. Bloomberg reported that the ECB would, with broad support from its council members, unveil an unlimited, sterilized program of bond purchases.

The ECB has been expected to be cautious about disclosing the size of its bond-buying, given opposition from Germany's central bank. Further details of the plan are expected to be revealed by ECB President Mario Draghi after Thursday's meeting. However,  the ECB may opt to wait until after the German constitutional court rules on the region's bailout funds on September 12 to announce any new steps.

Equities have received a boost in recent months on expectations the ECB would start buying Spanish and Italian government bonds to ease the pressure on those countries' bond markets and that the Federal Reserve will adopt new stimulus to prop up the economy. The S&P is up about 7 percent since the start of June.

Nokia and Microsoft took the wraps off their most powerful smartphone on Wednesday, but the new Lumia failed to impress in what may have been the last major shot at winning back a market dominated by Apple, Samsung and Google. Nokia ended the day down 16 percent to close at $2.38 while Microsoft was little changed.

Shares of Facebook rebounded almost 5 percent off an all-time low after the company promised not to sell stock to cover a nearly $2 billion tax bill and said it will allow employees to cash in their stock weeks ahead of schedule, moving to soothe nervous investors and its own staff as its share price spiraled downward from its $38 IPO price.

About 5.49 billion shares changed hands on the three major equity exchanges, a number that was well below last year's daily average of 7.84 billion shares.

Productivity Rises While Inflation Remains Tame

Nonfarm productivity increased considerably more than initially thought in the second quarter as businesses largely held the line on hiring even as output rose, helping to keep inflation pressures tamped down. Productivity increased at a 2.2 percent annual rate, the Labor Department said on Wednesday. A month ago it estimated that productivity, which measures hourly output per worker, rose at a 1.6 percent pace. It fell at a 0.5 percent rate in the first three months of 2012.

The economy created 219,000 jobs in the April-June period, about a third of the first quarter's tally. Hiring did pick up in July, with employers adding 163,000 workers to their payrolls. Economists believe the momentum slowed in August.

The upward revision to productivity growth, which beat economists' forecasts for a 1.8 percent rate, reflected an upward adjustment to the estimate for second-quarter economic growth to a still-sluggish 1.7 percent pace from 1.5 percent.

Unit labor costs -- a gauge of the labor-related cost for any given unit of output -- rose at a 1.5 percent rate in the second quarter rather than 1.7 percent, the report showed. They were up only 0.9 percent from a year-ago, underscoring the lack of wage-related inflation pressures in the economy and helping to keep the door open to further monetary easing by the Federal Reserve to stimulate the economy.

Worker hours rose at a 0.1 percent rate in the second quarter, the smallest increase since the third quarter of 2009, while nonfarm output increased at a 2.4 percent pace.