The "euphoria" demonstrated by investors by the U.S. Labor Department’s jobs report on Friday may be short lived. When we look "behind" the positive numbers of 6.3% jobless rate and the 217,000 jobs "created" we see a different picture of the state of the "jobs recovery."
The Bureau of Labor Statistics monitors something called the "U-6" which is defined as "total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of all civilian labor force plus all marginally attached workers." While that compilation may difficult to comprehend, it means simply that the "true picture of unemployment and underemployed" is over 12%.
Many of those included in the 6.3% figure are workers who took positions earning less then the job they lost and that "reduces" consumer’s ability to purchase goods. It also appears that consumers are loading up on credit as credit growth increased in April to a seasonally adjusted $26.8 billion.Expectations were for an increase in spending debt of $15 billion. Credit card debt rose 12.3% in April. This is the highest annual rate of credit card debt since November of 2001.
The 30-year Treasury bond (CBOT:USU14) closed at 135 and 14/32nds, up only 1/32nd after the monthly jobs data which helped push prices lower and yields higher. Investors viewed the jobs data as "evidence" of a continued economic recovery. However, as explained in the overview, that "assumption" will be shortlived. We continue to expect bonds to remain "rangebound" and that bodes particularly well for "strangle" spread positions.
The Dow Jones industrials closed Friday at 16,924.28, up 88.17 points and another new record for that index. For the week the Dow gained 1.2%. the S&P 500 closed at 1,949.44, up 8.98 points and another new record. For the week it gained 1.3%. The tech heavy Nasdaq closed at 4,321.40, up 25.17 points, and for the week gained 1.8%. The record for this index remains over 5,000. The markets rallied as the U.S. jobs report was viewed as evidence of a "strengthening labor market", something we do not see without the "rose colored glasses" equity investors are obviously using. We once again, ad nauseum, recommend holders of large equity positions to implement risk hedging strategies. We see the "black hole" under the equity market increasing with each new rally and can offer strategies to our readers.
The September U.S. dollar index (NYBOT:DX14) closed at 80.555 on Friday, up 4.2 points against most of its trading partners. The positively construed jobs data provided the impetus for expectations of a defacto U.S. rate increase and attraction to dollar investment. The September Euro closed at $1.3647 down 13, the Swiss Franc lost 21 ticks to $1.1205, the Japanese yen 10 ticks to 0.09747, the British pound 6 ticks to $1.6796, and the Canadian dollar 4 ticks to 91.26c. Only the Aussie dollar managed a slight 2 tick gain to 92.75c. While we do not see a continuation of the "euphoria" exemplified by the equity markets, we favor the dollar against Eurozone based on new revelations by ECB President Draghi. Stay with the dollar.
July crude oil (NYMEX:CLN14) closed Friday at $102.66 per barrel, up 18c and for the week lost 0.5%. The U.S. jobs data provided the expectation for an increased demand for energy. We, of course, disagree with that expected scenario and remain bearish for crude. Due to the expectation that the U.S. government proposal to cut greenhouse emissions could increase demand for Natural Gas, the September contract gained 2.2c to close at $4.6790 and for the week gained 3%. We continue to favor the bearish view for crude and the bullish view for Nat Gas (NYMEX:NGN14).
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