Archive - Apr 2011 - Story

NFP reports March NFP at 216,000, above expectations of 190,000, and higher from an upward revised February 194K. Private payrolls at 230K on expectations of 30K. The unemployment rate at 8.8% is the lowest since March 2009. Underemployment (U-6) came at 15.7%. Average hourly earnings unchanged (0.0%), below expectations at 0.2%. Manufacturing payrolls below expectations at +17K on expectations of 30K, previous revised lower to 32K. But the kicker, as usual, continues to be the Labor Force Participation rate, which continues to be at a 25 year low of 64.2%. The average workweek was at 34.3 hours, unchanged from before, and confirming that from the Fed's perspective there continues to be a lot of slack in the economy.

Citi's economics team is forecasting +250k for Friday's NFP release, well above the median estimate of +190k. The distribution of estimates has a substantial right tail and we expect that many forecasters are erring on the side of caution. Of the 83 forecasters, 72 lie between 150k and 230k, with the other 11 stretching from 235k to 295k. The problem is that a weak number is a much clearer indication than a strong number. A significant negative surprise is likely to be very USD negative as it can not be explained away by the weather and clearly shows that the recent disappointments were not aberrations. Hold tight - the fun starts in ten minutes.

Some highlights from the just released Philly Fed president's speech, bringing yet more hawkishness into the equation:

• Says stronger rebound in economy, inflation may require aggressive policy action
• Must not be too sanguine in believing time to tighten is long way off
• Recovery will continue at a moderate pace
• US economy growing 3.5% annually this year and next
• Prospects in labour markets have improved in recent months
• Expects inflation to be about 2% over the course of 2011... so not the 8.3% which is the accurate number? Odd.

"The downgrade reflects our view of the concluding statement of the European Council (EC) meeting of March 24-25, 2011, that confirms our previously published expectations that (i) sovereign debt restructuring is a possible pre-condition to borrowing from the European Stability Mechanism (ESM), and (ii) senior unsecured government debt will be subordinated to ESM loans. Both features are, in our view, detrimental to the commercial creditors of EU sovereign ESM borrowers." Shocking

Markets in positive territory this morning in anticipation of U.S. employment figures estimated to show an improving labor market. Hawkish comments out of the Fed yesterday as the Minneapolis Fed President said that the Fed could increase rates by the end of this year, way before market expectations. The Richmond Fed President also called for a decrease in QE2. Estimates for March payroll figures due out today show declines with nonfarm at +190KE v +192K prior, private at +210KE v 222Kprior and manufacturing at 30KE v 33K prior. We think the risk is to the upside with jobs numbers, but the unemployment percentage read is difficult to say as it has dropped on lack of labor force participation versus true gains. Ireland’s bank stress tests yesterday showed its four largest banks are in need of €24B in capital. The government has created a restructuring plan which involves a combining two of the lenders together. Along with €46.3B already injected into the Irish financial sector and €30B spent on banks’ property loans, the Irish financial sector has cost an amount that is about two-thirds of the Irish economy. Chinese PMI in manufacturing rose to 53.4 v 52.2 prior. A PBoC official yesterday recommended doubling the reserve requirement ratio up to 100bps as an anti-inflationary measure.

After first it was disclosed that TEPCO does not know the different between millions and thousands, the firm which is now set to be at least partially nationalized, has decided to blame its computers for the ongoing catastrophic handling of the Fukushima disaster. From NHK: "Tokyo Electric Power Company says it will review all data on radiation
leaked from the damaged Fukushima Daiichi nuclear plant, citing errors
in a computer program. The utility says it found errors in the program used to analyze
radioactive elements and their levels, after some experts noted that
radiation levels of leaked water inside the plant were too high." In other words, every "fact" you have heard so far in the past 3 weeks - you can forget it. And since the BLS is coming, and the Nasdaq is about to fund (105% debt financed) the Japan government's multitrillion restoration effort, it will all be well from now.

The only thing that matters today is the NFP number at 8:30 am. Goldman sees 175,000 and 8.9%, consensus is 190,000, ranging from 150,000 to 295,000. NY Fed's Bill "Go Eat iPad" Dudley will speak at the E-3 summit in Puerto Rico. Expect more culinary advice on how to best cook one's deflationary plastic appliances. Also today we get the March ISM expected to come at 61.0, construction outlays, and the Dallas Fed.

While it is admirable that the Nasdaq and ICE are doing their best to avoid going obsolete in a world in which exchanges no longer matter, the question of just how credible the market considers an offer which has a financing component accounting for 33% of the transaction funding ($3.8 billion), is very suspect. After all what prevents private equity firm XYZ to come up with a 100% debt funded overbiad thanks to a "highly confident" (also known as "highly conflicted") letter from Goldman that it can raise the debt. In this case we have debt underwriting "titans" Bank of America and Wells Fargo underwriting the $3.8 billion. In other words, this deal has the same probability of happening as the Fed has of sustaining the market without downticks for the next 3 months.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 01/04/11