The February jobs data has been compiled and is now ready for public consumption. The consensus is for 165,000 (revised upward from 160,000) nonfarm payroll jobs being added and the rate to hold steady at 7.9%. This may be a difficult number to trade because the equity markets have already sloughed off so much negative news to keep the rally in tact–Italian elections, sequestration and economic malaise throughout Europe. The weekly jobless claims numbers have surprised on the downside during the last few weeks so a 200,000 NFP number would not be a surprise. It will be more important to watch average hourly earnings and the length of the work week–earnings are expected to be up by 0.2% per hour.
If the consumer is to strengthen spending, earnings will have to increase to give greater impetus to the recovery. December saw a large increase due to bonuses and dividends being brought forward to avoid increased taxation so a number above 0.2% will be a badly needed positive. The workweek has remained stuck at 34.5 hours, but in light of the increased medical costs on employees hours should increase before new workers are hired. The stock market has certainly enjoyed the mix of tepid growth and an accommodating FED policy but the economy is going to have to begin to strengthen so as to keep the rally in place. Yes, zero interest rate policy is certainly a powerful elixir but it can’t continue to be the sole variable. The FED has told us that rates will low but unlike Senator Schumer, I don’t think it can be the only game in town now that we are approaching all time highs in the S&P.
The Canadian employment dat will be simultaneously released with the U.S. and there is an expectation of a slight gain of 7,000 jobs after January’s 22,000 LOSS. The unemployment rate is expected to remain at 7.0% but as usual I will be watching the manufacturing jobs very carefully. The Bank of Canada has already warned of the slowing in the housing sector as banks hold back on mortgage lending. So while construction jobs should be a drag, the robust U.S. auto sector ought to help create work in the industrial base of Ontario. All in all, not very much to go on, but hey Spain has 26% unemployment and the overall European economy is more than 12% unemployed. It hasn’t affected the markets in Europe so why worry? It’s all good.
***The ECB and the BOE held steady today as predicted. The British pound initially strengthened as some analysts had forecasted an increase in the QE program but by day’s end the POUND was virtually unchanged against the U.S. dollar but weakened versus the euro. The ECB held rates as expected at 0.75% but it seems that President Draghi’s press conference was not nuanced to an easing mode so the recent EURO shorts covered their positions. After having listened to the hour-long press conference, I am impressed by how much the market moves on Mario Draghi saying NOTHING. Again, he reiterated that a RATE CUT was discussed but it gained little or no support. The ECB president let it be known that he was very satisfied:
- The early repayment of the Long Term Repo Operation by some banks;
- Receding financial market fragmentation;
- The narrowing of spreads between the core and the peripheral nations as international flows return to the European debt markets and thus the shrinking of risk premiums; and
- The Italian election was a quick blip but the markets steadied themselves and proves resilient to accepting a bad political outcome.