Notes From Underground

Well, my guesstimate on jobless claims was way off as the previous number was not supported by further improvement. The consensus was 425,000 and the number actually reported was 436,000, well above what I anticiapted and hoped would be a three handle.

The ECB held lending rates at 1 percent and Trichet did not announce a large quantitative ease. The initial reaction was a selloff in the EURO currency and the periphery bonds. However, the drop in the EURO was abruptly halted as the European bank stepped in and bought Irish and Portugese debt, causing the EURO to rally and the BUND/IRISH BOND spreads to narrow. If you have access to the Italian BOND futures I would advise watching its price action relative to the Bunds as a real time market mechanism to alert you to ECB actions.

The problem with the BANK intervention is that it is tactical and not strategic, thus its market impact will be diminished in time. Markets test the resolve of policy makers as much as markets test the convictions of traders. That is just the reality of being involved in all things market-related. After the ECB actions, the global equity markets were all bid and the DOLLAR weakened, even though the economic news from the U.S. was somewhat favorable.

Tomorrow is the release of unemployment data for the U.S. and Canada. The Canadians report at 6 a.m. and the market is looking for a 20,000 job gain and the rate holding at 7.9 percent. As always, I advise paying close attention to Canada as a precursor to U.S. data as a strong number can be indicative of improved growth in the U.S. Last month, the Canada came in weaker than expected and disconnected from its neighbor. In the preceding months, the Canadian data was much better than U.S. employment figures, but with better auto sales and manufacturing picking up in the U.S., the releases should gain some synchronicity. The consensus for U.S. unemployment data is for 150,000 NFP gain, a steady 9.6 percent rate and average hourly earnings to increase by 0.2 percent.

Also, watch the hourly work week, which has been steady at 34.3 hours per week. An increase will mean that job growth is coming. If the NFP comes in at less than 80,000 and if the rate were to climb, the BONDS and NOTES would rally as they have been sold hard during the last two weeks. It seems that a 200,000-plus number is anticipated  so watch for a quick selloff on a large NFP gain and then see if the market begins to reverse. Again, I caution that the BONDS are difficult because of the FED and its desires. If the BOND yields head higher but the equity markets continue to rally, the FED may be very comfortable with that scenario. The problem for BOND traders is what will the FED do if the equities and bonds broke together for that would disrupt the FED’S desire for asset reallocation.

A quick aside: I want to note PepsiCo’s purchase of  68 percent of Wimm-Bill-Dann for an immediate $3.8 billion. A few weeks ago I wrote that Russia was an emerging market of which to be bullish in 2011. Until today’s announced buyout, the financial news from Russia has been very negative. It has been reported that Russia has recently experienced large outflows of capital as foreign and domestic investors have grown tired of the games played by Putin and company and were looking to find opportunities in other places. The huge outflow of capital however has not resulted in a large drop in the RUBLE. In fact, the EURO/RUBLE cross has actually moved in Russia’s favor.

In tomorrow’s Financial Times there is yet another negative piece in which it quotes Peter Aven, president of Alfa Bank, as discussing how the Russian investment climate is worsening. Aven is to be respected but I still maintain that on a relative basis to other emerging markets Russia is cheap. Evidently Pepsi thinks so too. Now let’s see if other multinationals are thinking in the same vein.

Tags: Bond, Canada, ECB, Euro, euro/ruble, Fed, NFP, PepsiCo, Russia, Trichet, U.S., unemployment

This entry was posted on December 2, 2010 at 9:32 pm and is filed under Debt Market, Europe, Russia, unemployment, United States. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.