First, the unemployment report offered no surprises as the market was close to the actual release. The real surprise was in the upward revisions to the February and March numbers. The negative surprise was the average work week shrinking by 0.2% of an hour. The shorter work week may be an aberration but it may mean that employers are cutting workers hours so as to keep under the Affordable Care Act mandates, but I caution it is far too early to say that this is definitely occurring. The BOND markets reacted negatively to the “stronger” jobs data and the 10-year note future fell as yields rose by 10 basis points. Investors bought stocks and seemingly sold bonds in a performance of risk-on/risk-off. Again, one day’s action does not a trend make. The pure risk-on/risk-off paradigm has been dormant for quite a while and let’s hope it stays that way.
Archive for the ‘France’ Category
Well, Moody’s downgraded the France’ sovereign rating from AAA in what was an obvious bow to reality. MOODY’s, WHAT TOOK YOU SO LONG? This will really be a bitter pill for President Hollande as it was only last week that the “French cock” was crowing about how well the bond markets were evaluating his performance as the leader of France. I reminded readers that the recent performance of the French debt had more to do with Mr. Draghi’s aggressive actions than any policy put forward by the Hollande government.
Last night , Prime Minister Noda decided to call for new elections in Japan and that automatically ends this session of the DIET. The elections will take place in a month and the present unpopularity of the DPJ means that the LDP is the favorite. It seems that Noda was willing to call elections on the promise that the new parliament would work toward some type of election reform. Hopefully some of the readers of NFU will help fill in the specifics about the issues of election reform. The YEN was sold off on the news of Parliament’s dissolution because the present strength of the YEN and its negative impact on Japanese manufacturing is certain to be an issue. The LDP’s leader, Shinzo Abe, has been very vocal about the BOJ/MOF doing more to raise inflation in the Japanese economy and to be more aggressive in efforts to weaken the YEN. While the YEN weakened, the NIKKEI index held its overnight gains even as the S&Ps, DOW and NASDAQ were knocked lower following President Obama’s press conference.
Notes From Underground: Mario Draghi Reveals He’s A Fleetwood Mac Fan; Says GOLD IS A “Mystery to Me”November 8, 2012
As today was central bank day in Europe, both the ECB and the BOE had rate decision meetings and left their current policies in place. The BOE did announce that it was “halting” the expansion of the QE program at 375 billion pounds as it deems the recent increases in its bond buying program to be less effective. Recently, BOE Deputy Governors Paul Tucker and Charles Bean have stated that “asset purchases may no longer have the same impact on the economy as when first introduced.” (Bloomberg) The market had different interpretations as to the reason that why the BOE was curtailing the QE bond purchases. 1. The recent rise in inflation was causing the halt; or 2. the lessened impact of recent QE was going to mean that the bank was going to increase the funding for lending scheme in which the BOE provides incentives for commercial banks to lend more money to small and medium businesses. This is of interest for FED watchers because BOE Governor Mervyn King has been a trail blazer for creative central bank actions and the FOMC may mimic some of the BOE actions to get a boost to a low velocity of money situation.
The equity markets began to sell off as the rumor of an early release of Google’s earnings proved to be correct. The earnings were significantly less than the market consensus and thus Google stock dropped 13% quickly, bringing the Nasdaq and S&P indexes down with the heavily weighted technology giant forcing a market wide sell off. My take is that this was not a mistake but Google testing the market.
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.
Today, the finger-pointing in Europe continued as Bank of France Governor Christian Noyer scolded the ratings agencies and complained that it was the U.K. that should lose its AAA credit rating before France. Let us be clear: Christian Noyer is way out of line. First, the French are the premier bashers of the over aggressive role that Moody’s, S&P and Fitch play on the international financial scene. But when the power of the agencies can be used against a foe, then NOYER can point the finger that the BRITS are much weaker than the French and need to be punished. Secondly, NOYER shows how inept he is as a central banker because the finger-pointing does nothing to make the case of why France should not suffer a downgrade.