Markets turn on payroll data that doesn’t live up to hype

Overview and Observation;

"Where’s the beef?" After waiting anxiously all week for the all-important jobs data, the report left us with more questions than answers. While the U.S. economy added 169,000 jobs in August and the unemployment rate down ticked from 7.4% to 7.3% it was due to fewer people looking for work. Labor force participation rate fell to 63.2%, its lowest level since 1978. Had the 300,000 or so who left the job market been factored in, the unemployment rate would actually have increased to 7.5%. Also, the downward revision for the prior month of 104,000 from 162,000, was the smallest gain since June 2012. The June figure was also trimmed from 188,000 jobs "created" down to 172,000. These revisions of course are disconcerting since the jobs data plays an important role in the marketplace. We continue to suggest that the so called "jobless recovery" is a fallacy and remind our readers that "an unemployed consumer does not consume" and the "manufacturers of those un-consumed products are next to lay off workers." Another of our admonitions is that should the weekly first time unemployment figure decline it is not an improvement in the jobs sector but only that there are fewer workers available to lay off with companies "shutting their doors."

Also of concern has been the Administration’s attempt to garner support internationally as well as in Congress for an attack on the Syrian government. Over 100,000 have died during the 2 ½ year old "revolution" but the last 1,400 killed by chemical weapons is what prompted President Obama to draw a "red line" in the sand. I am not sure if the 100,000 killed prior to the use of chemical weapons cared what killed them, i.e. bullets, bombs, clubs, etc., nor how many women and children were included in that number. The prospect of siding with the rebels whose numbers include terrorist elements makes no sense to me. Nor has it been determined whom it was that used the chemical weapons, Assad or the rebels to secure U.S. involvement. President Obama claims it was the Assad regime while Russian President Putin claims it was the rebels to "provoke the U.S. intervention. Putin claims Russia will support Syria against any U.S. attack. To "re-establish" the "cold war" with Russia and China only for the U.S. President to save face, is also of grave concern. Hopefully Congress will refuse to support more war. The marketplace needs geopolitical calm to allow participants to make meaningful investment and trading decisions. Now for some actual information…

Interest Rates:

The December 30-year Treasury bond (CBOT:ZBZ13) closed Friday at 129 06/32nds, up 16/32nds as yields declined after a tumultuous week and wide swings in yields and prices. The disappointing economic data appeared to have delayed any Fed "tapering" of stimulus but a reduced bond buying by $10 billion a month in September remains a possibility. We continue to favor the long side of bonds and after this week’s selloff would consider adding to bond calls. We see no reason to expect the Federal Reserve to determine the economy has improved to the point where "stimulus" is no longer required. The jobs data described in the "overview" is no reason to "celebrate."

Stock Indices:

The Dow Jones industrials closed Friday at 14,922.58, down 14.90 but for the week managed a 0.76% gain. The S&P 500 (CME:SPZ13) closed at 1,655.16, up 0.08 points and for the week gained 1.4%. The tech heavy Nasdaq closed at 3,660.01, up 1.22 points and for the week gained 1.95%. The initial reaction to the nonfarm payrolls data showing 169,000 new jobs were created in August was positive even though lower than economist forecasts for 180,000 jobs. We once again suggest strongly the implementation of risk hedging strategic programs.

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