Forex Market Commentaries - Employment and the Piigs

Employment, employment, employment and the F PIIGS

Sep 2 • Market Commentaries • 2758 Views • Comments Off on Employment, employment, employment and the F PIIGS

For those amongst us who are not UK based, or not familiar with some of the soundbites our various UK politicians have used, “education, education, education” was a heralding cry by a previous Prime Minister on his election campaign. As to how and where the “jobs, jobs, jobs” were to be found after the “education, education, education” was not part of the agenda or script. There existed at the time a simplistic and deeply flawed ideological belief that a highly educated new generation would stimulate commerce and the jobs would follow, a ‘field of dreams’ “build it and they will come” vision..

Youth unemployment in certain advanced European countries is located in the fields of nightmares not dreams. Spain has a youth unemployment rate of circa 44%. A generation that is; better equipped, better educated, or more mobile you’d struggle to find and yet close on half of this generation has been ‘warehoused’ and given the European sovereign debt crises are still here, exemplified by Greece missing a payment on it’s insoluble rescue package, the Spanish youth could be forgiven for thinking their situation (en masse) is hopeless. In the USA the jobs situation is dire despite the percentage numbers conveniently remaining below ten percent.

The most glaring example of the desperation and abject humiliation the jobless in the USA experience can be found at ‘job fairs’; armed with a cv, or resume, countless thousands queue up to parade in front of potential employers, the majority of positions available at the fairs are for low or minimum wage positions. As to how the USA govt remedy this problem is the sixty four thousand dollar question, incidentally that’s where the median wage should be, $64k, allowing for inflation over the past twenty years and the devaluation/purchasing power of the dollar, instead in real and inflation adjusted terms it’s less than half that..

One unforeseen consequence of the desperate employment situation is the boom in mortgage refinancing currently being experienced, however, it is scraping the bottom of an over ripe barrel. With less and less equity in their homes and banks adopting a much stricter underwriting policy many American home owners are finding that the “computer says no”.

Equally that desperation is amplified by the European shadow monetary policy committee. The ECB shadow council is a group of 15 economists and portfolio managers who watch economic developments and monetary policy in the euro region and issue recommendations each month. They recommend a cessation of rate rises and an immediate reduction of 0.5-1%. How that would stimulate growth and rescue the PIIGS is unclear, but for now Greece, Italy and France are off the radar. Just how you fit “f” into PIIGS is as puzzling as finding a solution to the sovereign debt crises, some economists might suggest that “the F PIIGS” would be an apt description..if Norway join the group the description may be completed.

 

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The NFP jobs numbers today have taken on a new ’emergency urgency’ given Goldman Sachs prediction of only a 25k gain. That number is so close to negative to make it almost irrelevant, but in an economy that has to produce circa 250,000 new jobs per month to remain static it’s an indication of just how dire the economic situation is in America once you remove the secular bear market rally conditions experienced from 2009. As traders and speculators know only too well NFP day can be tricky at the ‘best’ of times, today it could be a day to step aside unless 100% committed.

The expectation of a very poor NFP number has undoubtedly weighed down stock indices and daily futures this morning, this after a poor Asian session which saw the Hang Seng lose the most at 1.81%, the Shanghai and Nikkei losing just over 1% each. The ftse is currently down circa 2% the DAX down 2.5% and the SPX future down 1%. the DAX fall has been spectacular, there must be countless thousands of German small investors bruised or wiped out since May when the DAX reached heights of 7,500, particularly those who chose CFDs as their new vehicle versus their previous buy and hold strategy. The collapse, from peak to trough, is in the region of 30%, a crash in any language.

Gold is up by circa $27 per ounce and Brent crude down by $60 per barrel. USA treasuries have advanced in anticipation of the jobs report and predictably the Swiss franc and Japanese yen have been the safe currency haven for currency speculation.

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