This past week we saw sovereign debt concern dominate market as S&P downgraded Portugal’s sovereign rating. China hike interest rate again, which added concerns on global recovery and drove down commodity prices.In the Interest Rate front, RBA and BOE decided to keep rates unchanged while ECB hiked rates by 25 basis point as expected. Trichet’s Press Conference supported the Euro as ECB is suspending minimum credit threshold for Portugal, eliminating any funding concerns.
On Friday, Canada’s Employment came out slightly better than expectation while U.S. NPF Employment was shockingly disappointing. With the market feeling uncertain over U.S.’ recovery, this risk aversion sentiment may be the primary driver for next week’s market.
We have a few tradable releases next week, but the focus will be on the developing situation in Europe as Italy now is in the spotlight. We should also pay attention to Retail Sales on Thursday (July 14) as it would provide another crucial confirmation for US economic recovery.
1. Tue July 12, 2011 – 4:30am EDT – UK CPI y/y
2. Tue July 12, 2011 – 2:00pm EDT – US FOMC Minutes
3. Wed July 13, 2011 – 6:45pm EDT – NZ GDP q/q
4. Thu July 14, 2011 – 8:30am EDT – US Core Retail Sales
5. Fri July 15, 2011 – 8:30am EDT – US Core CPI m/m
…the EU bank stress test is also scheduled on Friday, so keep your eyes open for that.
Here are the figures for today’s (ie. yesterday's) NFP release:
NFP Employment 18K V 105KE
Private Payroll 57K versus 132KE
Prior NFP revised down to 25K (from 54K)
Prior Private Payroll revised down to 73K (from 83K)
Unemployment Rate 9.2% V 9.1%E
Number of Unemployed = 14.1M
Participation Rate = 64.1% (Lowest since 1984)
Jun. Average Hours Earnings $22.99 / Average Working Hours 34.4
Birth/Death Adjustment: 131K with 206K prior.
So what do these numbers mean? First of all, 18K NFP release is a farcry from the expectation of 105K… Most analysts are calling this number “shocking” because none of the economists surveyed by ANY news agency even came close to 18K… Meanwhile, President Obama is using the same old rhetoric “we still have a long way to go and a lot of work to do to give people the security and opportunity they deserve” and not offering any concrete solution. Market is now contemplating on those ”additional tools” that Fed. Chair Bernanke spoke of during his last press conference to possibly boost the economy, and the recovery outlook is looking grimmer by the week for U.S.
Furthermore, the private payroll figure, came out at 57K versus 132K of expectation. It is common knowledge that the Private Sector, or Small Businesses, are the saviors of US economy, and it is disappointing to say least when the market missed consensus forecast by 75K jobs… Also considering the negative revisions from last month’s NFP release, today’s NFP is negative across all spectrums.
The Unemployment Rate also ticked up by 0.1% to 9.2%, which means that the total unemployed but still receiving benefits are around 14.1, not counting ones that have already exhausted their unemployment benefits… The total number of Americans unemployment could be 25 to 30 million according to a conservative estimate. Additionally, what really stood out was teh participation rate at 64.1%, which is not only the lowest since 1984, but it is an indication that Unemployed Americans are tired of looking for jobs… This is a shocking revelation and hopefully it is seasonal due to summer.
Lastly, the Birth/Death Adjustment added +131K, which is basically a fancy way of manipulating jobs number for it to look pretty. Here’s the table for the raw unadjusted data from CES:
Total nonfarm 358.0 376.0 18.0
Total private 783.0 840.0 57.0
The figure 376.0 is adjusted with 131K of the Birth/Death ratio, netting a 18K of positive employment. Although the method of adjustment is not a straight substraction/addition, it is safe to say that without the B/D Adjustment for the month of June, we would get a negative NFP.
All in all, NFP is painting a negative picture for the U.S. economy. Traders are going to be a little more cautious in the coming weeks, and optimism is going to be low. With Greece, Portugal, Italy, and Spain all going to be in the focus, plus the European Bank Stress Test results, we should see a mostly risk aversion driven market.
