As everybody reading and/or listening to financial news all week knows, tomorrow at 7:30 a.m. CST the Bureau of Labor Statistics will release the unemployment report, which has been deemed as the most important data since …….????? The consensus is now for a nonfarm payroll increase of 170,000, the RATE TO STAY AT 8.2% and average hourly earnings to increase 0.2%. After Wednesday’s ADP data, the market has lowered its NFP expectations and thus, a consensus number of 170,000 will be a positive for the EQUITY markets, positive for the DOLLAR and meaningless for the BONDS.
A number below 100,000 and any increase in the jobless RATE would probably secure an extension of OPERATION TWIST so if the S&Ps break on a weak number be careful to not sell the initial weakness as the markets will recoil and process the idea of round three of QE. For Canadian watchers, that number will not be released until next week so there will be no view on manufacturing from the North. Also adding to the uncertainty of this release is that the April jobs report tends to be seasonally strong. All in all, it’s a mess and difficult to dissect.
***Remember that the French elections will be more significant for global markets. Der Spiegel online had a very interesting article about a Hollande victory and what it will mean for the new president of the EURO GROUP. The article is titled, “WILL FRANCE’S ELECTION HINDER GERMAN LEADERSHIP of the EURO GROUP?” There is rumor that the present President Jean Claude Juncker has resigned the post out of exhaustion from having to dance between German and French demands. “The acting president of the Euro Group, Luxembourg PM Jean-Claude Juncker, wants to leave the post in June. Unofficially, Schauble has been a candidate to succeed him for weeks now. But the French election has prevented any decision thus far.”
The article further points out that President Sarkozy had agreed to Wolfgang Schauble as the Euro Group head but moved to keep it quiet until after the election. Sarkozy feared that Schauble being the chief promoter of the FISCAL PACT would make him a poor choice for the French electorate to accept. It would appear that Sarkozy had caved in to Merkel’s demands for a German to head the group driving for fiscal austerity. The French election has the power to be very disruptive, although one positive is that the French 10-YEAR NOTE futures (OAT) closed on its recent highs. Unless it was ECB buying, the BOND MARKETS seem somewhat sanguine about a Hollande victory or the election is still very uncertain. Oh, I have morphed into a two-handed political scientist.
***Quick Hitter: It seems that the ECB is not a very beloved institution. At today’s meeting in Barcelona, 8,000 Spanish Police were needed to secure the meeting site. No problems were reported but it is certainly an indication of the economic and political tension present in Europe. Can you imagine if the FED were to be secured by such a massive show of force? Also, in tomorrow’s Financial Times there is a piece by former ECB EXECUTIVE BOARD MEMBER BINI SMAGHI, which discusses the need for the EURO to depreciate so as to reflect its true value in such an uncertain economic environment.
Bini-Smaghi notes the need for certain emerging nations to stop buying EUROs so as to hold the value of the EURO up against their own currencies (guess to whom he is referring). Also, Professor Smaghi notes that the EUROs are reinvested in the DEBT of the strongest European economies so it is evidently the Chinese that have driven the German 2-YEAR NOTE to 7 basis points. This argument by Smaghi makes perfect sense and helps clarify the mystery of ultra-low SCHATZ RATES. Chinese Intervention+German Debt= a win win for the Chinese.