Regular readers of our blog entries will note that on several occasions and on several journal entries this week, we warned our community with regards to the impending NFP job number and how it may be an ‘outlier’ causing over-reaction. We were urging caution due to the jobs data being 18 days late and it being impacted by the temporary government shutdown in the USA. In some ways that prediction came true, the NFP print was indeed disappointing. Only 148,000 jobs were created in September, despite this the unemployment rate remained at 7.2%. There was also a revision to the previous month’s data, revised up to 193,000 in August. The snapshot data is here;
[quote]”Total non-farm payroll employment rose by 148,000 in September, and the unemployment rate was little changed at 7.2 percent, the U.S. Bureau of Labor Statistics reported today. Employment increased in construction, wholesale trade, and transportation and warehousing. Household Survey Data The unemployment rate, at 7.2 percent, changed little in September but has declined by 0.4 percentage point since June. The number of unemployed persons, at 11.3 million, was also little changed over the month; however, unemployment has decreased by 522,000 since June.”[/quote]
U6 unemployment numbers reveal a different snapshot
However, taking a look at the jobs numbers in more detail, by accessing the U6 data paints a rather different story. The U6 print in the USA is the total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons (U6RATE). That rate is currently 13.2%, which is arguably the ‘real’ level of unemployment in the USA, versus the media friendly print courtesy of the BLS each month.
Although high in recent years, post the banking crisis and the credit crunch, the number reached as high as 17.4% and looking at the graph courtesy of the St. Louis Fed (FRED) the number does appear to be on downward trajectory. However, U6 was as low as 7.6-7.7% immediately prior to the crises, therefore any thought of a jobs led recovery, as championed by certain factions in the financial mainstream media, is considerably wide of the mark. Unemployment is still a massive issue in the USA and no amount of media focus on one set of data versus arguably the ‘real’ set can alter that fact.
Fifth District Survey of Manufacturing Activity
In other news the ‘Manufacturing in the Fifth District’ remained weak in October, according to the most recent survey by the Federal Reserve Bank of Richmond. Shipments, capacity utilization, and the backlog of orders declined. The volume of new orders flattened, while vendor lead-time rose. Finished goods inventories and raw materials inventories also increased in October. Although the average workweek was little changed, manufacturing employment picked up slightly and average wages continued to grow. Manufacturers’ outlook for the six months ahead was optimistic, though somewhat less buoyant.
Market overview
Despite the poor NFP print the markets rallied, the logic working like this; the poor print means that the govt. target of 6.5% unemployment, before the monetary easing programme of $85 bn per month is stopped, is further away. Similarly the poor print will ensure that any action on the taper of the stimulus will now be put back further, perhaps as late as March/April 2014. Therefore that extra stimulus means that cheap money is available at the top of the food chain to speculate on equities, particularly the top 500 companies in the USA who have used the cheap money on acquisitions, or buying back their own shares.
The DJIA closed up 0.49% on the day with the SPX up 0.57% and the NASDAQ up 0.24%. European markets joined in the late afternoon rally; STOXX closing up 0.57%, UK FTSE up 0.62%, CAC up 0.43% and the DAX up 0.90%. The ASE closed up 0.45%. The leader on the board in Europe was the Swiss market index, closing up 1.12% on the day, the Swiss trade balance exceeding expectations helping the index rise, the balance was up to 2.49 bn.
Commodities experienced mixed fortunes, with WTI oil finally breaching the critical psyche level of $100 a barrel by some distance. ICE WTI oil was down 1.38% on the day to finish at $98.30 per barrel. NYMEX natural was up 0.34% on the day. COMEX gold was down 0.18% on the day at $1340.30 per ounce, with silver at $22.71 down 0.35% on the day.
Equity index futures are currently flat or down marginally at the time of writing, the DJIA down 0.06%, SPX down 0.09% and the NASDAQ down 0.09%. European equity index futures are up; FTSE up 0.63%, CAC up 0.45% and the DAX up 0.84%
Forex focus
The dollar depreciated by 0.7 percent to $1.3781 per euro late in New York time, and touched $1.3792, the weakest level since November 2011. The greenback was little changed at 98.14 yen, while the Japanese currency lost 0.7 percent to 135.25 per euro and reached 135.51, the weakest since November 2009. The Swiss franc climbed as much as 0.9 percent to 89.40 centimes per dollar before trading at 89.47. The dollar slid to its weakest level in almost two years versus the euro after lower-than-forecast U.S. employment gains added to speculation the Federal Reserve will delay reducing stimulus.
The euro has risen 6.2 percent this year in the basket of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indices, the best performance. The dollar has advanced by 1.1 percent, while the yen has tumbled 12 percent in the biggest loss, the indices show.
The loonie rose 0.2 percent to C$1.0286 per U.S. dollar late in Toronto, touching the strongest level since Sept. 24th. One loonie buys 97.22 U.S. cents. The Canadian dollar rose to a four-week high versus its U.S. counterpart on speculation that weaker-than-forecast America jobs gains last month will delay the Federal Reserve from tapering its monetary stimulus.
Bonds
The benchmark U.S. 10-year yield fell nine basis points, or 0.09 percentage point, to 2.51 percent late New York time, the lowest level seen since July 24th. The price of the 2.5 percent note due in August 2023 rose 3/4, or $7.50 per $1,000 face amount, to 99 28/32. Treasury 10-year note yields fell to a three-month low after a report showed payrolls climbed less than projected in September, indicating the U.S. economy had little momentum leading up to the federal government shutdown.
Fundamental policy decisions and high impact news items to watch out for October 23rd
Sterling may be affected by the minutes of the BoE decisions regarding the monetary stimulus programme and the base interest rate. Should there be any dissenters to the 9 nil votes sterling may come under pressure. The BBA will issue data on the mortgage approvals expected to come in at 39.4K for the past month. The loonie may experience some movement on the basis of Canada’s central bank rate statement. The WTI oil price may experience some movement should the crude oil inventories fall or rise more or less than the anticipated 2.7million barrels.
