All eyes are now focused on the release of the U.S. employment data. This has taken on a new level of importance as the inflation/deflation argument heats up. The pundits have woken up to the fact that without robust job growth the U.S. will remain mired in a deleveraging quagmire. All the economic modelers and Greenspan put followers cannot understand how you cannot have growth and an equity rally with zero interest rates … hmmm, they must have been sleeping like MOTHRA while Japan deflated.
Before the U.S. release, we will see the Canadian unemployment numbers, which are projected to show an increase of 14,000 jobs and for the rate remain steady at 7.9 percent. Canada has seen robust job growth during the last quarter so we look to see if it continues and, more importantly, to see if jobs are increasing besides the raw material sector. We will be watching the numbers for any increase from Ontario, which is home to the auto sector. Last night, we saw disappointing empolyment numbers from New Zealand as the jobless rate jumped 0.8 percent, which was 0.5 percentage points higher than estimated. We wonder if this was a one-off anamoly or if Asia is starting to come off the boil. New Zealand milk prices were also lower and the KIWI suffered on all the crosses as long positions were liquidated. One month does not a trend make, but we will put this on our radar screen as an important indicator of Asian growth.
The consensus number for U.S. jobs is an estimated net loss of 65,000 as census jobs roll off. The more important component will be how many private sector jobs were created and the market estimate is approximately 60,000. Average hourly earnings are expected to be flat as is the work week. As always, we will pay close attention to manufacturing and construction because those are two sectors that will need job creation if the recovery is to gain traction. If the private sector job growth is negative, we look for the equities and DOLLAR to be sold off, but look for S&P support levels as the market will view a negative jobs number as being the push that the FED and Treasury needs to go to the next stimulus program. We are fearful that a really weak number may prompt some jawboning from the BOJ to soften the YEN’s rally or maybe some actual intervention. The YEN continues to strengthen and this is a real problem for Japanese exporters.
Today we saw factory orders from Germany, which were up 3.2 percent while the market was looking for 1.5 percent. German exports are booming and we stress that is German exports and not European. After we saw weak Japanese orders last week, we can be sure that the cheap EURO has helped Germany displace Japanese high-valued goods on the world markets. It is for that reason that we will be watching the YEN closely, but we add it is a tough trade for the technical picture looks good to many traders.
As we reported earlier today, the Obama administration is rumored to have an August surprise for Main Street by utilizing FANNIE and FREDDIE to ease the stress on home mortgages and lower the monthly payments for millions of Americans. The rumor about the intricacies of this plan are varied so we will not comment on the supposed specifics, but the Treasury denied that there was any such plans. We believe from our 33 years of analyzing the markets and political economy that the more it is denied the truer it is. Our experience is that some policy maker opposed to the plan and leaked it so as to head off the proposal and prevent the Democrats from making a big splash and buying political good will from Main Street. Think of the impact that a cut of several thousand dollars in mortgage payments would have on distressed homeowners. We have much to watch but for an August hiatus this is getting interesting. As the Christmas Eve Fannie and Freddie nationalization showed, it is the hours of quiet in which the present policy makers wish to do their work. Who knows what lurks in the minds of men? Apparently the shadow banking system does.
Thursday evening, the Washington Post reported that Christina Romer, head of Obama’s Council of Economic Advisers, announced her resignation, effective Sept. 3. While sources said Romer was frustrated by Washington life, we at NOTES believe that she will be tapped to replace Janet Yellen as the new president of the San Francisco Federal Reserve. Until September…
Tags: BOJ, canadian employment, Dollar, Euro, Fannie Mae, Fed, Freddie Mac, Kiwi, Main Street, Obama, SPS, Treasury, u.s. employment, Yen
August 6, 2010 at 5:11 am |
Keep in mind that there will be a focus on private sector employment generated with an expected range of +70k to +125k.
August 6, 2010 at 6:55 am |
“All the economic modelers and Greenspan put followers cannot understand how you cannot have growth and an equity rally with zero interest rates…”
Whirlpool recently sent 1,100 refrigerator-making jobs from Indiana to Mexico. We give bailouts to GM. GM then shuts down U.S. plants and opens new ones in Mexico. I read stories like that every day. Isn’t that the plan? All the economic modelers and Greenspan don’t understand the very system that they advocate: wide-open free trade, is creating jobs in places like China, India, and Mexico. What’s the problem? Everything is going according to plan – Corporate America’s jobs-exporting plan.
August 6, 2010 at 7:37 am |
jill –there is facts to that but the reason jobs move are many but good economic policy and quarter to quarter thinking is needed and it starts with tax reform ——-I don’t know that corporate amerika is bent on destroying jobs —this is a big question and cannot be dealt with in platitudes and remember that china was successful in undermining NAFTA –we will discuss this at some further time but it is a policy debate well beyond the ken of traders
August 6, 2010 at 10:02 am |
NAFTA (The North American Free Trade Ac) has been in effect for sixteen years. These are the total private-economy jobs as of January of each year since the passage of NAFTA. (See Bureau of Labor Statistics page using the “Total Private Employment – CES0500000001″ option)
January 1994 – 93,327,000
January 2010 – 107,123,000
Jobs created = 13,796,000
Well isn’t that just great? Not if you take into account pre-NAFTA total private-economy jobs…
January 1978 – 68,984,000
January 1994 – 93,327,000
Total private-economy jobs created = 24,343,000
America’s ability to create jobs has been reduced by half.
We have a disaster in America right now, a severe economic decline. Could it be any worse for America to bring home those thousands of factories and millions of manufacturing jobs?
The income and tax revenue from the former 1,100 workers at Evansville, Indiana now goes to Mexico. Times that by the millions of jobs lost to low wage countries. No wonder why America is going bankrupt.
August 6, 2010 at 10:11 am |
I am afraid I agree with Jill. The source of deflation is the outsourcing. It’s the grand trade since the fall of the Berlin Wall, labor arbitrage. Produce cheaply and sell to the developed world consumer.
But, corporations have finally killed the golden goose, the overleveraged middle class consumer. This is why debt forgiveness is seriously considered. If I remember myhistory, the depression didn’t end until the debt levels had been paid off or written down by 1938 or so.
August 6, 2010 at 10:16 am |
your nafta numbers make the case for all the capital investment that was to be in Mexico headed to china after the chinese devalued their currency by 50% on january 1st,1994 to counteract the emergemce of Nafta and you know what–they succeeded
August 6, 2010 at 10:40 am |
Ron___the deflationary impact of the freeing of global labor pools is very important but the key you hit on is the expansion of debt in this environment to keep the engine stoked for consumer partiicipation.Financing poor credit becuase of a huge pool of external savings is very reminiscent of the 3rd world crisis that resulted from from the OPEC savings after the oil price hike going to finance the worst class of borrowers–and so it goes
August 6, 2010 at 1:01 pm |
What is the White House thinking? Politics = unemployment = elections = Capitol Hill… that´s OK. Global politics (international/domestic) is a key factor and Investors should be managing money correctly.
What is Bernanke thinking? maybe to much thinking and no acting?
Pimco’s Gross Says Fed Won’t Raise Rates for 2 to 3 Years!
From Spain (Yep! Obama and Mrs Obama are here)