Notes From Underground: Solid Unemployment Report Yet Perplexing Market Reaction

In the recent blog post I opined that the nonfarm payrolls (NFP) would be above the long-hoped for 300,000. The actual number was a “tepid” 214,000. The market was certainly anticipating a large addition for why else would the DOLLAR selloff and the BONDS have such a sustained rally. The SPOOS and other equity markets closed unchanged on the day–stronger for the week–but the post-jobs report reflected that it will take strong economic data to push equities higher in a world without FED purchases and a confused ECB. The strongest part of the unemployment report was the fall in the U6 data, which fell 0.3% percentage points to 11.5%. Unfortunately for Chair Yellen wages gained a slight 0.1% indicating little upward pressure on pay.

The Canadian jobs number was far better than expected for the second straight month as NPF in Canada rose 43,000 when the consensus was for a slight drop. The Canadian jobless rate fell to 6.5% from 6.8%, a significant drop, especially when jobs are being shed in the Canadian natural resource sector as energy and mineral prices are under downward pressure. The Canadian dollar strengthened against the U.S. dollar but its price movement versus the other major currencies was minimal. All in all, the day’s reaction verified that the market’s desired a much stronger number.

The most surprising price movement was in the GOLD market as the December futures rallied $45 off the overnight low. Gold made four-year lows last week but by late Friday the gold higher on the week, a technical indicator that bears watching. More importantly, gold tested the GOLD/YUAN support level from November 2009 and closed the week above the price of the IMF gold sale to India, a range of 7080-7150 Gold/Yuan. (Earlier in the week the support level was violated but on a weekly close support held.) Again, the technicals for gold have been horrible but as even Alan Greenspan noted last week, the fundamentals are constructive for the “barbarous relic.” Two weeks ago I noted that the November 30 Swiss referendum may have some impact on the psychology of gold.

In a Bloomberg article from Nov. 5 by Nicholas Larkin and Catherine Bosley, it is noted that the Swiss National Bank is very opposed to the Swiss voters passing the referendum calling on the SNB to retrieve all its gold from foreign depositories and also to be an active buyer to replenish previously sold gold reserves. Larkin and Bosley noted the referendum specifies that at least 20 percent of the SNB‘s total assets be held in gold from a present level of 8 percent. The problem is magnified by the present policy that is holding the Swiss Franc at a floor of 1.20 to the euro. Since the 1.20 EUR/CHF policy was announced, the SNB‘s assets have expanded by more than one-third as the SNB has intervened in FX markets by selling Swiss francs and buying euros and other foreign currencies. If the SNB wishes to maintain this absurd policy it will have to buy much more GOLD if the referendum passes.

The SNB is presently selling a hard currency, the Swiss franc, and buying massive amounts of a problem plagued asset, the euro. The SWISS policy of holding the EUR/CHF at 1.20 will be proven a foolish endeavor if the ECB moves to a significant QE program. The Bloomberg article concludes with a concern of the Swiss Government that “…. the initiative’s [referendum] ban on gold sales would deprive the SNB of an asset should it find itself in dire straits. Several analysts share that view.” In putting forth more nonsense about the SNB having to purchase gold, Georgette Boele of ABN AMRO in Amsterdam says: “You hold gold in terms of an emergency that you can liquidate if you really need to.”

Let me reiterate the nonsense of this statement: 1. If the SNB had to liquidate in an emergency then GOLD, in fact, would be the most sought after asset of haven status in the world and its price would be at extremely elevated levels; and 2. You don’t have to sell your GOLD but rather create an asset-backed security using GOLD to borrow on a leveraged basis in the very liquid capital markets. The SNB and Swiss authorities are evidently very nervous about the upcoming referendum because of the effect it will have on the EUR/CHF policy of the SNB. Buying gold would be the best policy for the entire Swiss nation for presently the policy of printing Swiss francs to purchase euros is patently absurd.

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8 Responses to “Notes From Underground: Solid Unemployment Report Yet Perplexing Market Reaction”

  1. Doug Says:


    6 months ago, Friday’s NFP would have been considered a Goldilocks number…….equities would have rallied, gold would have broken, and bonds would have been steady to a little higher.

    You may be right that the equities market may want stronger numbers. The alternative view is that the market doesn’t like what it sees coming in the future.

  2. yra Says:

    doug–I think it is too early to tell that and December ‘s ECB meeting may be more important for that as investors wish to see the ECB fill the “void” left by the Fed–the Bond rally seems to reflect the market’s disappointment with the 214,000 but will see how the week proceeds but the SPOOS certainly look strong for the moment.

  3. Dustin L. Says:

    Yra- Hearing some talk that the SNB would just use derivatives to shift some assets off balance sheet to avoid having to “honestly” implement the policy if the referendum results are in favour. Balance sheets are hardly ever what they seem anymore. Happy trading!

  4. Chicken Says:

    Uranium producers sure lifted on the Japan news.

  5. Chicken Says:

    Wonder if Russia’s selling the physical gold in order to support the Ruble, or asset-backed securities?

  6. Yra Says:

    Chicken—i would be very surprised if Russia is selling gold,as it is counter to everything Putin seems to desire–Vlady is searching for alternatives to the dollar and being under the thumb of U.S.and be subjcet to the world’s hegemon–the sanctions bother Moscow and many others–it is the dollar standard that gives the U.S. the power to sanction

  7. Chicken Says:

    To me, the Euro looks like it’s about to fall off a cliff?

  8. Chicken Says:

    $US at near breakout level range bound for a decade and ECB attempting to obtain permission to devalue the euro (call a spade a spade, okay), would be surprised if gold or commodities could rally. We can already see evidence of this reverberating through the US energy producers.

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