Today is May Day and European markets were closed in an effort to celebrate labor over kapital. Financial markets celebrate the international markets with pageantry but not with higher wages. Yesterday, the Fed released its interest rate decision and as expected there’s another $10 billion cut in asset purchases and a basic steady outlook on the economy. Janet Yellen has unnerved the markets when she dissed the importance of the FED‘s DOT PLOT charts, which reflected FOMC members’ predictions on the fed fund targets for interest rates into the next two years. Chair Yellen said that for the near future it will be words and not “DOT PLOTS” that markets should concentrate on, especially after yesterday’s very weak first quarter GDP numbers. The economy was very weak and the FED now leads us to believe that weather was the primary force and expects the second quarter to pick up some of that delayed demand. Unfortunately, the consumer spending and health care costs were the most robust parts of the first quarter and the consumer spending flies in the face of the weather impact.
Bond markets have rallied for the last two days and this gives rise to investors covering short positions for fear of an anemic growth outcome, lending credence to what the bond bulls have been warning about. The FED seemed not overly concerned about yesterday’s weak data but the BOND markets saw the shorts dash for the exits and bulls dash to accumulate more. If tomorrow’s unemployment number were to be weak look for another dash to acquire the long end of the yield curve. Now, about those DOT PLOTS.
***Unemployment Friday is upon us. Wednesday’s ADP number has jived with the early consensus of nonfarm payrolls of 220,000. However, the weaker GDP data and the action in the bond markets has led some analysts to lower their calls into the 175,000 range. I don’t see anything exciting unless we get a number above 300,000 or below 125,000. More important will be the average hourly earnings and the amount of hours worked. The average hourly earnings number was weak for March but that was explained away by the weather impacted February rise of 0.4 percent. A number below 0.3 percent would be construed as more of the same and would disappoint Fed Chair Janet Yellen. An increase in hours worked is needed to show that demand for work is improving for if the issue is that there is a lack of qualified workers to higher than the presently employed should see an increase in their hours. So far this has not shown itself.
Europe also reports its unemployment number for the entire EU and while the previous number was 11.9 percent the consensus is for unchanged which is a reflection of the very tepid recovery in the EU. The markets seemed not overly concerned about European job weakness but if growth does not come soon, the ECB will be under increased pressure for more aggressive monetary stimulus. If the consensus proves correct, well, you know the rest of the story.
***In response to the previous blog on Soros and Draghi, a long-time reader wrote me a piece in true Notes From Underground humor:
Where have all the Currency Specs gone, long time passing?Where have all the Currency Specs gone, long time ago?Where have all the Currency Specs gone?Young Central Bankers and Geeks have picked them everyoneOh, when will they ever EARN?Oh, when will they ever EARN?(Thanks to Peter,Paul Mary, and, of course Kevin M.)