Matt, stronger-than-expected numbers and some good revisions to previous months. Still lots of dreck to sort through before the jobs picture is truly strong. Dollar rally a mystery to watch. In the market, I'll be watching the retailers. The stubborn wage gains made bode well for Santa Season. We'll talk about gold later.
Kevin Giddis, a bond market watcher at Morgan Keegan offers his thoughts on why bond market bulls may not be in full retreat on the good economic news:
One would think we would see a complete a€?washouta€? of Treasury prices, which, after a quick draft down, found a number of buyers at new levels. ??Why? ??Three things come to mind. 1) There is a lot of cash on the sidelines that needs a home 2) One month does not a trend make and 3) The Fed and its buying program provide ??underneath support for Treasury prices. 5) All in all, a good number for the growth story, ??but still way to early to declare a victory on jobs??and the weak U.S. economy
Giddis seems about right so far. After a knee jerk sell off, people have come back to bonds a bit this morning. Yields on the 10-year are around 2.53%, not drastically higher than the 2.51% level they were at before the jobs report.
Matt, unlike you, I think Gold has great days ahead of it. We'll have to address that divergence at a future momentito. Meantime, Gold may be just as confused as others about the dollar surge. (See Ruskin at 8:56 EDT.) Gold tends to do best when it's clear the dollar is debauched declining. So, once the dollar downdraft re-asserts itself (will it?) as is widely expected, look for Old Yeller to get moving again.
Of course, goldbugs might have "overenjoyed" the fruits of yesterday's surge and are not yet at their desks. Possible.
You know what's kind of weird? The reaction of gold. (Or as we like to call it here on MBeat, Old Yeller.) ??Under orthodox market think, gold is traditionally seen as an inflation hedge. ??But it's giving no reaction to the better-than-expected jobs numbers. Zilch. Zip. Nada. Nyet. It's down a piddly 0.1%.
Granted it had a monster day yesterday, jumping up $45.60, or 3.4%, at $1,382.70 a troy ounce on the Comex division of the New York Mercantile Exchange. Maybe gold is just worn out after yesterday's surge?
But if the specter of an ill-timed Fed move to print money can't get the gold bugs giddy, I've got to wonder what will. (Full disclosure: We've been down on the yellow metal for a long time here at MarketBeat.)
Matt, very good point re Buy North America (Loonie doing okay) trade. Here's another reason the dollar is surging against the euro: more problems on the euro fringe. The spread between Greek 10-year bonds and similar German bunds has risen to an eye-watering 9.1 percentage points. Nick Skrekas, our man in Athens, points out that this is the level Greek debt hit just before the big IMF-EU bailout was announced in May. Ireland isna€?t far behind and Spain says Q3 growth stalled. Not so robust, that euro-zone.
The yen. Always mysterious. But could be folks bailing out of dollar shorts everywhere once the euro turned. Thata€?s a huge, twitchy bet, shorting the dollar.
So, the reaction of the U.S. dollar is pretty interesting. As we mentioned before, it would seem that today's report raises the prospect that the Fed is hitting the QE2 accelerator just as the economy starts to rev again. That could be inflationary.
With that reason, I'd ??think the dollar would fall on the report. Instead it's been rising. Check out this chart of the U.S. dollar index, which is heavily weighted toward the euro.
So why is the dollar rising? My theory is that it's global flows coming back to the U.S. stock market. Everybody has been hating the developed markets and hearting the emerging markets lately. I think people want to get in on U.S. growth! Cue the Star Spangled Banner!
Leave it to government-owned Royal Bank of Scotland to rain on the U.S. jobs figure. Dow Jones says John Briggs, the bank's interest rate strategist, finds it depressing anyone is excited about 151,000 jobs added. "We've got a lot of wood to chop here with the unemployment rate at 9.6%."
Ah, dour Scots. They will always be with us.
Alan Ruskin at Deutsche Bank likes the report and is mildly surprised the dollar has rallied. a€?The FX reaction is remarkable for the initial negative EURUSD response [i.e., sell euros/buy dollars], but this is not seen leading to a serious challenge of key downside levels [for the dollar]a€|We need a string of these kinds of numbers before it is realistic to flirt with the Fed terminating the QE2 exercise before the Q2 2011 a€?due date.a€?
He seems to think the Fed can keep on pouring the juice, even if bond investors have started getting wiggy, as Matt shows with that nifty chart.
Investors have been selling the 10-year Treasury note on the report, pushing yields up. (Remember our bond see-saw: Lower prices = higher yields, and vice versa)
As devout MarketBeaters know, the big boogie man for bond investors is inflation. (Which devours fixed returns over time.) So the report may reinforce worries about the Fed hitting the QE2 accelerator just as the economic engine starts revving.
Here's a Tradeweb chart of the 10-year yield over the last couple days. You can see the yields spike on today's jobs report.
More comments coming. Peter Boockvar at Miller Tabak: a€?Net-net, a solid report relative to expectations and let's hope sustainable but if it is and inflation continues higher, the Fed's job in suppressing interest rates will get really tough.a€? Yes, given the surprisingly strong ISM manufacturing reading earlier this week, the possibility that the Fed is pouring on the gasoline at the wrong time looms. But I think Mr. Boockvar underestimates how much Bernanke wants inflation. The Lesson of Volcker: The Fed believes it can slay inflation. Lesson of Japan: They think they have no prayer against deflation.
Matt, one thing the S&P furtures probably like: the revisions. The monthly report is notoriously volatile, even though we treat as near sacred writ. So, along with a surprise in Oct., the DOL hiked Sept. to 107,000 from 64,000 and August to 143,000 from 93,000. That means that not only was October surprisingly strong, the trailing three months now look pretty decent. Point of information: Economists believe payrolls need to grow at about 200K/mo to start knocking the unemployment rate lower.
Looks like we're going to hold onto those post-FOMC gains in stocks. Check out the S&P futures jumping on the jobs report.
David Ader, a bond watcher at CRT Capital in Stamford, Conn. Emails in a quick squib:
A much stronger than expected report with a series of upward revisons. The unrounded gain to UNR comes with a drop in labor force/participation so a bit deceptive. ??The drop in Manuf is an oddity ??given other measures, but there you go. ??Retail trade gained, a bit of seasonal issue?, but big gains in temp +35K, Education/health +53K. ??Information and financial slipped a little.
From the way-off-in-the-future machine: Fed-Funds Futures have increased the likelihood of the Fed raising short-term rates in mid-2012. Dow Jones says odds are now 60% for such a move, up from 48% before the jobs report. That would run counter to the folks who see the Fed pouring on the kerosene until 2015, a view held by some Wall Street shops.
Matt, another two things the market will like:
- Hourly workweek rose 0.1 hour to 34.3 hours. As that number ticks toward a French-like 35, the more likely companies are to hire.
- Average hourly wages rose a nickel to $22.73, which is remarkable considering how many folks are out of work and the lack of headline inflation. That means that those still in work have a bit more walking around money as the holiday season approaches.
The so-called broader unemployment rate remains stuck at 17%. This includes folks who have stopped looking for work and those who have settled for part-time jobs. Also on the downside: 42% of those unemployed -- 6.2 million folks -- have been out of work for more than six months. So, big headline, but some of the internals are still not terribly pretty.
Here's one thing from the report that the markets will like. The forward leaning "temp workers" area continues to grow:
Within professional and business services, employment in temporary??help services continued to increase in October, with a gain of 35,000.??Temporary help services has added 451,000 jobs since a recent low in??September 2009.
More markets: U.S. stock futures have also turned higher and the blended Dollar Index has spiked to an intraday high.
Here are some of the headlines:
*DJ US Oct Nonfarm Payrolls +151K; Consensus +60K
*DJ US Oct Unemployment Rate 9.6%; Consensus 9.6%
*DJ US Oct Average Hourly Earnings +$0.05 To $22.73
*DJ US Oct Manufacturing Payrolls -7K; Svc-Producing +146K
*DJ US Oct Government Payrolls -8K; Federal -1K
*DJ US Oct Overall Workweek +0.1 Hour To 34.3 Hours
*DJ US Sep Payrolls Revised To -41K From -95K
Quick markets take: European markets have turned higher, after being lower. Euro is hitting an intraday low against the dollar. This number is double-plus consensus. Bunds, Treasurys are lower.
And the number is good. Headline jobs of 151,000. Unemployment rate at 9.6%.
What can I say? Like Bernanke I'm fascinated by the Depression era. I just don't want to live in one.
Matt, as a last aside: Is the Depression-Era WPA picture some sort of nonsubliminal messaging?
Hmm. Marketwatch more upbeat than Dow Jones, it would seem, in terms of consensus. One thing I noted in a lot of Wednesday research reports: election-driven excitement about the outlook. Look for some spin today on how the change in Washington could change the jobs picture. How that works, exactly, is a bit of a mystery to me.
Alright, brace ??yourselves MarketBeaters. The numbers should be crossing in about five minutes.
Yeah, for the record the consensus expectation in the headline is for a 60,000-job increase. With the unemployment rate staying flat at 9.6%, according to Dow Jones.
Beyond the headlines, one thing to look at: wage gains. That number has fallen to 1.7% (year-over-year) from 2% at the start of the year. Given the weak employment picture, that's not such a big drop. If it keeps holding up, that would be modestly encouraging for things like, I dunno, the holiday shopping season.
Matt, one thing we can look forward to: no more mention of the Census! At least that's the word on the Street. The distorting Census hiring/firing/counting numbers will mostly be out of this October report.
If there was a surprise in the jobs report last time, it might have been the steeper than expected falloff in government jobs. Here's a chart of the monthly change in headline job creation, up through September.
Those numbers from Kelly look very intriguing. And I'm usually a glass all-the-way-full type of fellow. But those jobless claims yesterday were ugly. And for all the euphoria of QE2, the jobs situation seems stuck in a familiar dark place. I would be surprised if we beat consensus, which is rattling around 70,000 jobs added in October, according to our confreres at Marketwatch.
Morning Dave, it's another big one today. As usual, Kelly Evans offers a good lookahead in today's Ahead of the Tape. (Short version: Declining productivity numbers might be a good sign for the jobs market.)
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