All things considered the new Federal Reserve chairperson Janet Yellen made a very impressive ‘debut’ on Tuesday, she quickly ‘moved through the gears’ covering many subjects expertly. A brief synopsis of her speech we’ve contained in our usual snippets sections below. However, what really caught our eye was her frank honesty that the unemployment situation in the USA was hardly resolved…
She also suggested she was surprised by the lack of jobs growth over recent months and she has every right to be concerned given that the USA, according to the non-farm payroll number, has increased by only circa 180K over the past two prints and months. Moreover, Ms Yellen appeared to suggest that she may reference the U6 unemployment number in future, as opposed to the U3 unemployment number which the mainstream media concentrate on. In doing so the ‘new’ (realistic) unemployment number would be 11.5%, as opposed to 6.6%.
The markets liked the speech so much the DJIA put on circa 200 pips and threatened to breach the critical psyche number and handle of 16000 to the upside. The reasons were obvious; Ms Yellen appears to be quite determined to use whatever arrows in her quiver to stimulate the economy and that includes the taper of the current QE3 programme which many investors are questioning if it may now be paused on occasion until the USA economy (and employment in particular) improves.
On the subject of jobs there are, according to the latest BLS job openings or JOLTS as they’re referred to, approximately 4 million jobs available to share. Given that the unemployment number in the USA is anywhere between 10 million and 15 million Ms Yellen should be concentrating on this JOLTS print, especially as it’s remained around the figure of 4 million for some time, leaving up to 11 million unemployment adults in the USA (if we take the higher band) calculation.
Finally in a USA dominated fundamental policy and high impact news day the small business confidence reading has edged up, but very slowly. It’s at 94.1 still well short of the average hundred reading pre the Great Recession. It’s quite a sobering report and as is our habit we’ve provided a snippet below.
US Job Openings and Labor Turnover – December 2013
There were 4.0 million job openings on the last business day of December, little changed from November, the U.S. Bureau of Labor Statistics reported today. The hires rate (3.2 percent) and separations rate (3.2 percent) were little changed in December. This release includes estimates of the number and rate of job openings, hires, and separations for the non-farm sector by industry and by geographic region. Job Openings There were 4.0 million job openings in December, little changed from November.
US small Business Confidence Edges Up, Ever so Slightly
Small business optimism started the year slightly up from December at 94.1 but well below the pre-recession average of 100, according to the National Federation of Independent Business’ (NFIB’s) latest index. On the positive front, owners did find a reason to be more positive about their own sales (a huge 7 point jump in positive expectations) and plan more hiring, with the strongest job creation plans since 2007. However, owners continue to find inventories “too high” and sales and earnings trends continued to deteriorate for more owners. Overall, the Index is still just treading water.
Federal Reserve chief Yellen says US jobs recovery far from complete
Recent global markets volatility does not pose substantial risks to US economic outlook. Yellen expects a “great deal of continuity” on US monetary policy. Yellen says she’s committed to helping economy return to full employment and ensuring inflation not persistently above or below 2%.
The US Federal Reserve released the text of Janet Yellen’s testimony to lawmakers. Here’s the brief executive summary
[quote]The economic recovery gained greater traction in the second half of last year. The unemployment rate is still well above levels that Federal Open Market Committee (FOMC) participants estimate is consistent with maximum sustainable employment. Those out of a job for more than six months continue to make up an unusually large fraction of the unemployed, and the number of people who are working part time but would prefer a full-time job remains very high. These observations underscore the importance of considering more than the unemployment rate when evaluating the condition of the U.S. labor market.
I expect a great deal of continuity in the FOMC’s approach to monetary policy. I served on the Committee as we formulated our current policy strategy and I strongly support that strategy, which is designed to fulfil the Federal Reserve’s statutory mandate of maximum employment and price stability.
The Committee has emphasized that a highly accommodative policy will remain appropriate for a considerable time after asset purchases end. In the near term, we expect to finalize the rules implementing enhanced prudential standards mandated by section 165 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. We also are working to finalize the proposed rule strengthening the leverage ratio standards for U.S.-based, systemically important global banks.
Since the financial crisis and the depths of the recession, substantial progress has been made in restoring the economy to health and in strengthening the financial system. Still, there is more to do. Too many Americans remain unemployed, inflation remains below our longer-run objective, and the work of making the financial system more robust has not yet been completed.[/quote]
Market overview at 10:30 PM UK time
The DJIA rose by 1.22%, the SPX by 1.11% and the NASDAQ by 1.03%, euro STOXX rose by 1.47%, CAC by 1.09%, DAX by 2.03% and the UK FTSE by 1.18%. Looking towards the equity index futures market the DJIA future is currently at the time of writing (10:30 PM UK time) up 1.19%, SPX up 1.01%, NASDAQ future is up 1.00%. STOXX future is up 1.39%, DAX 1.91%, CAC up 1.13%, FTSE future is up 1.22%.
NYMEX WTI oil finished the day up 0.55% at $100.43 per barrel, NYMEX nat gas up 7.62% at $4.93 per therm. COMEX gold finished the day up 1.32% at $1291.50 per ounce with silver on COMEX up 0.56% at $20.22 per ounce.
Forex focus
The Bloomberg Dollar Spot Index, monitoring the greenback versus its 10 major counterparts, dropped 0.1 percent to 1,023.76, late New York time, after touching the lowest level since Jan. 13th. The U.S. currency fell 0.1 percent to $1.3640 per euro and added 0.4 percent to 102.62 yen. Japan’s currency weakened 0.3 percent to 139.97 per euro. The dollar fell to the lowest level in four weeks after Federal Reserve Chairman Janet Yellen said the recovery in the U.S. labor market is “far from complete,” while repeating the Fed’s statement that asset purchases aren’t on a “pre-set course.”
The British pound rose versus the majority of its major counterparts after an industry report showed U.K. retail sales growth accelerated in January, adding to evidence a recovery is gaining momentum. Sterling appreciated 0.3 percent to $1.6452.
The Aussie rose the most in a week as the Aussie statistics bureau data showed today house prices surged 9.3 percent in the final quarter of 2013 from a year earlier, the biggest increase in more than three years. Business confidence climbed in January for the first time in four months, a National Australia Bank Ltd. report showed. Australia’s currency climbed 1 percent to 90.41 U.S. cents after reaching the highest since Jan. 14th.
The Aussie has risen 2 percent this year, the biggest advance after the yen and New Zealand dollar amongst the 10 developed-nation currencies tracked by Bloomberg’s Correlation-Weighted Indices. The Japanese currency has gained 3.4 percent and the dollar 0.4 percent, while the euro lost 0.4 percent.
Bonds briefing
The 10-year yield climbed five basis points, or 0.05 percentage point, to 2.72 percent late in New York. It touched 2.73 percent, the highest since Jan. 29th. The price of the 2.75 percent security due in November 2023 dropped 14/32, or $4.38 per $1,000 face amount, to 100 1/4. Thirty-year bond yields rose four basis points to 3.69 percent and touched 3.71 percent, the highest since Jan. 29th. Treasury 10-year notes fell for the first time in three days as Federal Reserve Chairman Janet Yellen said reductions in the central bank’s bond purchases will probably continue even amid uneven employment growth.
Fundamental policy decisions and high impact news decisions for February 12th
Wednesday Swiss CPI is published, expected in down -0.2%, whilst industrial production for Europe is expected in at -0.2% for the month. Attention then turns to the UK with the Conference Board number expected in at 0.5, similar to the previous reading. The Bank of England produces its inflation report, as the UK BoE governor Mark Carney delivers a speech. In Europe the ECB president Mario Draghi will conclude the same.
In the USA crude oil inventories are published, expected in at 0.4 million barrels similar to the previous week, whilst a ten year bond auction is scheduled with the bid cover ratio expected at 2.7 and the interest rate at 3.01%. The Fed’s budget balance is expected in at -€28.2 bn.
Attention then shifts to New Zealand’s manufacturing index expected in at 56.4, similar to the previous month’s reading.
