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.
Posts Tagged ‘Merkel’
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.
First, the equity markets continued this week’s rally as better data in the U.S. (housing) following upon the Monday retail sales report provided more fuel for the bulls and is causing great angst for portfolio managers that are underinvested and badly underperforming their benchmarks. These investment advisers must go to sleep and pray for the U.S. to bomb Iran so that they will have some type of opportunity to buy into the global equity rally. It’s tough to chase this one. As I wrote on Sunday, the IMF “volte face” on the impact of austerity budgets was a game changer as it will mean that austerity inspired programs, like the U.S. fiscal cliff, will force policymakers to be cautious in pushing for too much austerity in times of a balance sheet recession. The pushback from Spain, Italy and others is allowing the forces for unrestrained growth to gain ascendancy over the voices of austerity led by the Bundesbank.
For the almost three years that NOTES has been published, I tried to make it clear why the subtext of NFU was that 2+2=5. The idea of the math being so obviously incorrect was a direct reference from Dostoyevsky’s short story Notes From Underground in which the great Slav nationalist rails against the rationalists of the day. My use of the 2+2=5 reference is an attack on the rationalists of today, otherwise known as those dependent on sophisticated models to offer explanations for all the answers to questions in the realm of social science–economics of course being the main target. I bring this up as a reflection on the most recent stress tests of the Spanish Banks for if those literalists who think that the math in the Dostoyevsky story is wrong, then the math in the Spanish stress tests should cause one’s eyes to glaze over.
Just as I wrote in the headline, qthere is a story in the UK TELEGRAPH that the Chinese plan to put forward a 800 billion POUND stimulus program of major projects in the provinces. At this time, the TELEGRAPH is the only outlet with the story and has otherwise not been confirmed. IF THE STORY IS TRUE AND THE AMOUNT IS CORRECT THEN THE EFFECT SHOULD PUT UPWARD PRESSURE ON ALL RISK ASSETS AS THIS STIMULUS WILL BE CELEBRATED WORLDWIDE. THE INDUSTRIAL METALS, WHICH HAVE LAGGED THE RECENT RISK ON PROFILE, SHOULD GET A HUGE BOOST SO I WOULD ADVISE WATCHING COPPER AS AN INDICATOR OF THE VERACITY OF THE CHINESE STIMULUS STORY. Again, IF the story has any veracity all asset classes except DEBT should receive a BID Sunday night.
There are several stories making the rounds this weekend that the ECB is planning to announce that it will CAP interest rates on Spanish and Italian DEBT. It seems that the ECB is floating an idea to see how the market responds to the idea of aggressive action by the ECB. Some are even calling it “THE BIG BAZOOKA.”
It seems that the ECB president has for the moment prevailed in a similar way as his MIT cohort Ben Bernanke has been “successful” with his famed Portfolio Balance Channel. Remember, it was Jackson Hole speech of August 2010 in which Chairman Bernanke laid out his view about the importance of the PBC, which was previously referred to by Alan Greenspan as the “wealth effect.” President Draghi has steepened the Spanish and Italian curves by threatening to purchase short-term debt and thus driving the Spanish and Italian 2-YEAR NOTE YIELDS more than 300 basis points lower.
The travails of the financial markets continue even as the EURO ELITE believe that their holiday time is sacrosanct. Greece is in the headlines as financial pundits with time to fill conjecture about how long it is before the lifeline to the Greeks is cut and its economy and society set adrift outside the “safe” harbor of the EUROZONE.