The headline nonfarm payroll number was much weaker than expected and confused traders because it was so wide of the April 5 ADP release of 263,000, but the rest of the data was tepid though not weak enough to dissuade the FOMC from further efforts to raise rates. The important average hourly earnings was up 0.2%, in line with expectations, but the weekly hours worked slipped 0.1, which may have been in response to the early March storms. The unemployment rate dropped to a recovery low of 4.5% but that may be because of the amount of workers having left the labor force. The markets’ initial reaction to the headline NFP was the bonds rallied, the dollar weakened and the precious metals rose. By day’s end all the moves reversed from early rallies inspired by the U.S. missiles fired at Syria. The market had deemed the cruise missiles fired at the air force base in Syria as a market destabilizing event, spurring a purchase of what are deemed safe haven assets: GOLD, YEN, BONDS. But the end of day reversal nullified Syria as a one-off event. So the market is confused as to the genuine impact of the unemployment report and we will have to wait for more economic data to weigh all the “communication” coming from FED speakers. Chair Yellen will be speaking with a Q&A session on Monday afternoon so late market action should not be discounted.
Archive for the ‘China’ Category
The world is fraught with troubling news of assassinations, terrorist atrocities and confrontation between China and the U.S. But in the financial news it is all about the DOW PUSHING 20,000. To quote Mr. Natural: “What does the Dow 20,000 mean? It don’t mean SH*T.” We become enamored with numbers but in real financial terms 20,000 is meaningless on its own. The U.S. equity markets are enthralled with the possibilities that a Trump presidency will present. Three weeks ago Rick Santelli laid it out very well. He noted if trump was successful in reforming the ACA, realizing genuine corporate and personal tax simplification and reform, and rolling back some of the regulations burdening small and medium businesses the Trump administration would be an unmitigated success. If the Dow is the barometer, then Mr.Trump should declare victory and spend the next four years writing his autobiography.
It’s that time of the month: first Friday and the jobs data is front and center. Consensus is for 152,000 nonfarm payrolls. In my humble opinion it will take a number above 200,000 to put pressure on the FOMC to actually raise rates at its June meeting, or, more importantly, a headline jobless rate of 4.8%. As always, I am highlighting the AVERAGE HOURLY EARNINGS (AHE) as the most important number because it plays to Chair Yellen’s concern about 20 years of stagnant wages. The market is anticipating a tepid rate of 0.2% following April’s gain of 0.3%. A flat wage number would keep the FOMC on hold.
In the past I have criticized the CNBC tagline, “Live From The Most Powerful City In the World, New York.” I find it arrogant and devoid of any perspective. What makes a city powerful? In some sense I suppose it’s the ability to make and shape events around the globe. Wall Street may be a powerful money center but so is London and from a political and monetary sense Beijing has catapulted itself a spot among the most influential. Friday morning I did an interview with Gordon Long of the Financial Repression Authority, a must visit site for its archive of discussions on global macro issues. We were discussing the role of China in affecting U.S. monetary policy. Gordon Long has discussed the idea of an agreement reached in February at the G-20 meeting in Shanghai about an ACCORD to keep the U.S. dollar stable to weak in an effort to prevent the Chinese from actively pursuing a weaker YUAN for when the DOLLAR RALLIES THE YUAN IS ALSO PUSHED HIGHER AGAINST A BASKET OF DEVELOPED MARKET CURRENCIES AND CERTAINLY AGAINST OTHER EMERGING MARKET FX.
Notes From Underground: Chinese Economic Policy Is Modeled on Kelly’s Heroes Paradigm of Sgt OddballMay 4, 2016
It is time to invoke one of the great war movies of the anti-war decade, Kelly’s Heroes. The theme is relevant in two ways. First, a ragtag group is trying to steal a hoard of German gold from a heavily guarded town and divide it up among themselves as booty from the war (similar to Chinese desire for Western-owned gold). Secondly, one of the key characters is Sargent Oddball, a tank commander played by Donald Sutherland,who will not tolerate the negative waves of people who doubt the success of the “mission.” Today, Nasdaq ran the article, “China Warns Economists to Brighten Outlooks.” Through various sources the Chinese authorities said, “Securities regulators, media censors and other government officials have issued verbal warnings to commentators whose public remarks on the economy are out of step with government upbeat statements …” The formal policy is “zhengnengliang,” translated as POSITIVE ENERGY or as Oddball would command, “don’t give me any negative waves.”
When holiday markets quash volume and new items repetitive, it provides an opportunity to catch up with some general concepts in a style I like to call “Quick Hitters.”
At 8:00 a.m. EST, CNBC‘s announcer says, “From The Most Powerful City In the World, This Is Squawk Box.” What bothers me is the squawking about your importance. What irritates me even more is that Beijing has been the most powerful city when it comes to moving markets. Every other idea spewed this week has been about the impact of the Chinese authorities and the policy impact from the Politburo that “destroyed” trillions of equity market value. It even appears that the Chinese are dominating the discussion in Jackson Hole, Wyoming where the Kansas City Fed is hosting their annual symposium. Even New York Fed President Bill Dudley, aka Less Compelling, cites the Chinese as the reason to be less compelled to raise rates at the September meeting.
One of my favorite songs by Simon and Garfunkel is “A Simple Desultory Philippic” in which the duo takes the time to mock and criticize the world of culture and politics that surround them. Desultory means lacking a style or plan, while Philippic connotes a word for a tirade or rant. Will my readers entertain my desire to craft my own simple desultory philippic?
Almost 18 months ago I wrote a blog in response to an Ambrose Evans-Pritchard piece in the London Telegraph. I think readers of NOTES will find it more than a passing interest. More importantly, Mr. Evans-Pritchard wrote a new piece in yesterday’s London Telegraph, “China Cannot Risk the Global Chaos of Currency Devaluation.” Evans-Pritchard stresses the deflationary shock from a significant Chinese yuan devaluation in response to the Chinese plague of overcapacity from an excess of capital investment for a Chinese effort to increase exports to ease the burden of excess production would weight heavily on an over indebted world struggling with falling prices.
This is the greatest fear for the world ‘s central bankers and why I always referred to Bernanke and Yellen as the ultimate 1937ers for Bernanke promised Milton Friedman that the FED would not repeat the errors of 1937 and allow deflation to become the major dynamic in the world economy and certainly not the U.S. Evans-Pritchard is hopeful that the recent weakness of the YUAN is not really a new policy:
“The slowdown in China is not yet serious enough to justify such a risk. True, the trade-weighted exchange rate has soared 22% since-mid-2012,the result of being strapped to a rocketing dollar at the wrong moment.The YUAN is up 60% against the Japanese Yen.”
Read the article and be aware that the Chinese are not targeting the dollar but are very concerned about the YUAN strength versus the rest of the world.
There is much to talk about after the Chinese sent a shot across the bow of the U.S.S. Financial Complacency. If we glance at the currency charts of various global currencies versus the Chinese YUAN it is easy to see what the authorities setting policy in Beijing are so very concerned about. The YUAN may be very stable against the U.S. dollar but in terms of Brazilian real, Turkish lira, Mexican peso, Aussie dollar, euro, British pound, Japanese yen and Korean won, the YUAN has undergone a MASSIVE appreciation during the last three years. While the Chinese were announcing their intentions to attempt a pivot to a more domestic-consumption economy, a strong YUAN favored a structural change of such magnitude.