Archive - Sep 3, 2010 - Story

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 03/09/10

The ECRI Leading Indicator Index just came at -10.1%, a drop from last week's -9.9%, once again inflecting into double dip territory. One can only imagine what the spin proffered by the index creators will be this time: it was suddenly very credible last week, hopefully that credibility persists as it reaffirms a definitive double dip yet again.

Correlation desks = today's full retard

ISM Services comes in at 51.5 vs expectations of 53.2, and a previous print of 54.3. This is the second lowest Service read of the year. And keep in mind services are what drives America. AUDJPY plunges on the news. All components come in below expectations (New Orders, Employment, Business Activity), except prices, which is almost deflationary, but not quite. And most critically, the employment read came in at 48.2: the first posted contraction since January 2010. But the US economy lost only 54K jobs (and over 160k not adjusting for birth death), ergo all is well and double dip is off the table. Crazy pills time.

You knew it was just a matter of time before prudent Larry looked for greener pastures. Courtesy of William Banzai, we bring you Larry Summers' LinkedIn profile. No matter what you think of it, it is a victory for the bulls.

The survey of households featured a rebound of 550,000 in the labor force, split almost equally between increases in employment (290,000) and unemployment (261,000). As a result, the unemployment rate conformed to expectations, rising to a "high" 9.6% (9.642%). The rebound in the labor force was slightly less than ½ the cumulative loss registered over just the past three months. This underscores the difficulty of bringing unemployment down; if more increases are in the offing, as seems likely on trend, the trend in net hiring-perhaps best measured by private payrolls-will not prevent further increase in unemployment. Over the past three months, private payrolls have risen just 78,000 on average. And, despite last month's large increase in the labor force, the broadest "U6" measure of underemployment also went up, to 16.7% from 16.5%.

Today's NFP number means QE is now firmly off the table until 2011: monetary stimulus is stuck with QE lite for at least 3-4 months. Incidentally, this was the big catalyst that everyone was looking for to go all in on stocks. And with the economy still deteriorating, the only option is fiscal stimulus, but don't call it a stimulus as that costs political brownie points. So what are the options that Obama has before him? Goldman's Alec Phillips highlights the options which can be summarized as: a hiring credit, a payroll tax cut, a small business tax cut, bonus depreciation, and an extension of the Build America Bond program. His full thoughts below.

Private payrolls come in at +67K as Birth Death adds 115K, compared to just 6K previously, as U-6 rises from 16.5 to 16.7%, highest since April. Total Part time workers (all industries) increased by 401k from 18,157 to 18,558; part time workers for economic reasons increased by 331K. Workweek unchanged month over month at 34.2 hours, with average hourly earnings up slightly from 0.2% to 0.3%. 42% of the unemployed were out of a job for 27 weeks or longer, compared to 44.9% previously; average duration of unemployment at 33.6 weeks.

• Is this the reason for Japan's unwillingness to intervene: Japan Said to View U.S. Opposition as Yen Intervention Obstacle (Bloomberg) - Japan views probable U.S. opposition to intervention in the foreign-exchange market to address the appreciating yen as an obstacle to taking unilateral action, according to three Japanese government officials.
• LOL European Stress Tests: Lenders Shunned on Stress Tests Doubts (FT)
• LOL v2: White House: No Second Stimulus Being Considered (Reuters)
• East coast braces for Hurricane Earl (WSJ)
• French government vows to face down pension strike (Reuters)
• Chinese Funds Post Huge Losses in H1 (Caixin, h/t Mark)
• Bundesbank Asks German President to Dismiss Sarrazin After Race Comments (Business Week)
• Does Grandma Cause Unemployment? (Barrons)

• Oil falls below $75 a barrel in Asia ahead of US employment report.
• Russia said it would extend its ban on wheat exports into late 2011.
• Russia to double gas imports from Azerbaijan in a fresh blow to EU-touted pipeline project.
• US Pending sales of existing houses unexpectedly climbed in July from a record low.
• US Retail sales in August top estimates on tax holidays, discounts.
• 3Par determines revised HP proposal, for $33/share, is superior. Dell pulls out of race.

One of the world's bigger financial mysteries: the official breakdown of the Chinese FX reserve balance, received a rare moment of transparency today when the China Securities Journal gave the official tally of the $2.45 trillion stockpile: 65% in dollars, 26% in euros, 5% in pounds and 3% in yen. Which means China holds about $1.6 trillion in dollars, and, courtesy of the (recent record) trade surplus, growing. This distribution is roughly in line with expectations and with the world average FX holdings. Nonetheless, the massive concentration of dollar positions prompted Hu Xiaolian, a vice governor with the
People's Bank of China to warn that depreciation loomed as a risk for
foreign exchange reserves held by developing counties. As Reuters quotes, "Once a reserve currency's value becomes
unstable, there will be quite large depreciation risks for assets," she
wrote in an article that appeared in the latest issue of China Finance, a
Chinese-language magazine published under the central bank. Most certainly this is a tacit warning for US monetary policy, which is, of course a paradox, since ongoing dollar depreciation is CNY-beneficial due to the ongoing (semi) peg. China would love to have its cake, eat it, and to export twice as much of it if possible.

Goldman Sachs recaps expectations for today's key event - payroll day… also the ISM nonmanufacturing index and a couple of Fed speeches.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 03/09/10