Markets End the Week Higher on a Positive NFP Result, and a Sense of Optimism
Fri, Sep 3, 5:11 PM ET, by ForexTraders.com
Just as anticipated here yesterday, employment numbers of several past months have seen significant upward revisions, and this month's result turned out to be better than expected, although, still far from being satisfactory. Among the many interesting facts in the release, we note in particular the fact that this time, in spite of the Census Bureau layoffs being over, the public sector contributed a significant negative value to the headline number. This is well-understood to be caused by the diffculties faced by certain state governments, like California and Hawaii, where in some expreme cases, the school week was shortened by one day in order to make ends meet. On the whole, this is a new phenomenon, since analysts usually tend to focus on the private sector data to the exclusion of public sector jobs in order to get a good view of the underlying picture, the assumption being that public sector should be more or less stable, with some bias towards a gradual increase over time. It appears that this will no longer be the case, which makes future NFP releases even more crucial for drawing the big picture. Stocks were mostly up today, the iTraxx CDS indexes showed improvements on risk perception in all categories, yield curves steepened, as the dollar appreciated against the Yen, CNY against the dollar (USDCNY at 6.7973), and most other risky currencies gained against safe havens. The NFP was fairly bullish, and could well bring some momentum to the upside for the rest of this month, but even then, our bias remains bearish for as long as the external risks (as opposed to domestic) threatening global growth are not resolved in a credible manner. Eurozone retail sales up 0.1 m/m in JulyEurope seems to be troubled, in addition to its other difficulties, by the pessimistic outlook espoused by European citizens, and their highly cautious approach to consumption. In the best of times, they tend to be careful about their spending habits, and if today's numbers are any guide, they are retrenching even deeper in response to the issues of this year. Some people had expected the world cup to boost retail sales somewhat, but that doesn't appear to be the case, and now the outlook is tilted to favor stagnation in spending, even as the ECB maintains its extremely lax stance to address the region's problems. The year-on-year rate is barely holding near the 0.5% level, and has been fluctuating around there for quite a while. It is clear that the momentum observed in the earlier part of this year is gone which doesn't bode well for Eurozone economies outside of Germany and a few similar place, which are being boosted for now by robust export sector performace Ozawa talks tough on yenIchiro Ozawa, the challenger to Japan's PM, is on the wires advocating intervention if the yen continues to appreciate. Most commentators are inclined to regard his words as whiffs of hot air, however, since it is only too easy to pontificate from the sidelines while challenging the incumbent, but an altogether different matter to challenge established strategical balances once one is at the helm. It is widely expected that the BoJ will only intervene if volatility reaches levels that will indicate disorderly functioning of the currency market which is far from being the case at the moment. Indeed, markets are likely to give a breather to the Japanese after today's data, which would make intervention an even harder measure to adopt once the next leg of appreciation commences. NFP surprises to the upsideThe headline number came at -54.000, making this the third month in which the U.S. economy has been losing jobs. On the other hand, the private sector actually added some 67.000 new workers to payrolls, and the prior months saw a revision of about 123.000 to the upside. The unemployment rate is now at 9.6 %, in line with expectations, while the broadest measure of the unemployment rate, sometimes known as the U-6, rose from 16.5% to 16.7% in August, implying that the deterioration is worse than what the sterilized numbers of the BLS would imply. Excluding layoffs due to the Census Bureau, state and government payrolls contracted by about 14.000. Manufacturing contracted, while construction, professional and business services, and temporary employment sectors saw new workers added to the payrolls. On the income front, average hourly earnings rose by 0.3%, which is quite robust in the present circumstances, while the workweek remained stable. This is a good reading overall, but only so in the context of the severe disappointments of the past few months. With weekly jobless claims still above 450.000, there is barely a reason for optimism about the job market, even as the actual payrolls data continues to fluctuate around the centerline. As we have written here many times before, we do not expect the U.S. economy to trigger the next stage of the downturn, since it has already been severely mauled by developments of the past years. The center of the next stage should be Asia and developing nations, as well as the troubled economies of the Eurozone, but needless to say, the U.S. economy has a heavy weighting, and any difficulties here will make the troubles of the periphery much more intractable. So, a bullish end to a week that has seen much optimism on all fronts. It looks like this will be the theme of the month, as long as the rest of the world, especially Europe, does not spoil the party with their ever-deepening problems.
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