Even as the manufacturing jobs continue to collapse, posting their fourth consecutive monthly drop in June to 11.964 million jobs, minimum wage waiters and bartenders have never been happier. In June Restaurant and Bar employees just hit a new all time high of 10,339,800 workers, increasing by a whopping 51,700 in one month.
So it seems the full decay life of an ECB head is now 25 hours as the gloriously dovish comments from Draghi yesterday (that really said no liquidity withdrawal anytime soon) that spiked stocks up 1-4% across Europe have been battered back to unchanged by a good is bad jobs number in the US bringing the end of the Fed punchbowl ever closer. On the week, Portuguese bonds ended 68bps wider (with Spain and Italy 10bps tighter); Treasuries are underperforming Bunds by a very notable 21bps on the week. Despite stocks being generally unchanged (with Italy/Spain up around 2%), credit markets closed notably wider on the week. EURUSD is down around 200 pips on the week with the last 2 days the worst in almost 4 months.
We noted earlier in the week how day after day we have seen equity markets rally exuberantly early on, only to fade ingloriously back to credit's less sanguine perspective by the close. It appears, just as we mockingly pointed out on Wednesday's half-day close ramp, that the market seemed to have forgotten that there is a second half to the day and sure enough, as reality sinks in that Taper is nearer than equity asset-gatherers hoped (just as every other market already noted), equity markets are dropping rapidly back to Treasuries, credit, and precious metals' view of the world today... Equity markets have given up all of yesterday's Draghi/Carney jawboning gains...
Until today, Goldman expected the Fed's tapering to start in December. Not any more: following today's better for part-time jobs than expected data, the squid has pulled its tapering prediction up to the September FOMC meeting: just what Zero Hedge said 2 months ago. But what just slapped ES across the face is the following from FRBNY's informal advisor Hatzius: "We now expect purchases to continue through Q2 2014 (vs. our prior forecast of Q3 2014), in line with the guidance given by Chairman Bernanke at the last FOMC press conference." That's ok Goldman, we are used to you being wrong. Speaking of, any more Stolper recos?
While we already showed that according to the household survey the quality component of the June jobs report was absolutely abysmal, with part-time jobs representing more than all jobs added in June, we find that according to the establishment survey things were no better. In fact, as we show month after month, the bulk of the jobs additions were concentrated in the lowest paying industries.
Egypt's Islamists launched a nationwide "day of resistance" against the military coup that ousted democratically elected President Morsi today and AFP is reporting 3 are dead already following earlier warning shots as the crowd approached the barracks where Morsi is being held.
- *SHOTS FIRED DURING DEMO AT PRO-MURSI DEMONSTRATION: BBC TWEETS
- *3 DEAD IN GUNFIRE BETWEEN EGYPT ARMY, DEMOS, AFP SAYS
As WaPo reports, tens of thousands listened as a speaker called Morsi's removal from power an assault on the dignity of the people of Egypt, adding "there are Americans and Zionists behind this." Of course, as we noted here, the anti-American sentiment has been strong throughout, albeit hidden by most mainstream media channels.
UPDATE: S&P futures collapsing quickly - now down from Payrolls
The initial kneejerk reaction in stocks was oddly 'good-is-good' higher after the better-than-expected headline data on payrolls - which perhaps signalled that Taper is nearer - but FX, bond, and precious metals markets were clearly in Taper-On mode. Treasury yields cracked 13bps higher, Gold and Silver dropped 1-2%, outdates for Eurodollar futures dropped notably, and the USD jumped around 0.5% almost uniformly. As an illiquid equity market soaks in the reality, some of that initial surge is fading...
So much for any doubts about a September taper: with the street expecting a 165K NFP number for June, the actual print of 195K following an upward revised May print of 195K as well, means the Fed's September flow fade, aka Taper, is now virtually assured. On the other side, the Household Survey printed a 160K increase in jobs. The Unemployment Rate stayed at 7.6% despite expectations of a drop to 7.5%, although the real action was in the underemployment rate which exploded from 13.8% to 14.3%.
Our reality has changed in the last twenty-four hours. The Bank of England and the European Central Bank have re-affirmed their old positions since the Fed has changed tacks. It may well be, as Europe is in much worse financial condition than the United States, that there is a policy reason for the European positions but it may well also be a calculated move to devalue the major European currencies. Whatever the actual reasons, the European statements have certainly sounded the trumpet that the “Currency Wars” have reignited. It is a dangerous game when the world’s central banks that have been working for the last five years in unison and now they head down different paths.
After a few hours of calm yesterday, crude oil prices are once again surging back over $102 as the commander of the Third Field Army stated that troops deployed in Suez and South Sinai saw their "state of readiness" raised to "Maximum Alert." The announcement came after Cairo's airspace was closed for 40 minutes and flights were diverted to other airports because of air force drills. The 'state of emergency' has sent stocks sliding and put a modest bid into precious metals amid a call by Islamist allies of ousted Egyptian Prwsident Morsi to "take to the streets" and express their outrage.
US Change in Nonfarm Payrolls (Jun) M/M Exp. 165K, Low 77K, High 220K (Prev. 175K, Mar. 88K)
US Unemployment Rate (Jun) M/M Exp. 7.5%, Low 7.4%, High 7.7% (Prey. 7.6%, Mar 7.5%)
- Deutsche Bank: 145K
- Barclays: 150K
- UBS: 150K
- Goldman Sachs: 150K
- JPMorgan: 150K
- HSBC: 155K
- Citigroup: 160K
- Bank of America: 165K
- Egypt Girds for Muslim Brotherhood Protests (WSJ)
- SAC Capital's Steven Cohen Expected to Avoid Criminal Charges (WSJ)
- SAC insider-trading probe could last years (Reuters)
- RBI seen selling dollars around 60.59 levels: dealers (Reuters)
- China signals will cut off credit to rebalance economy (Reuters)
- Egypt army arrests key Muslim Brotherhood figures (BBC)
- Rise in Steel Prices Alarms Buyers (WSJ)
- Draghi-Carney Seek Independence Day Break From Bernanke (BBG)
- Samsung Warns Results Will Miss Forecasts (WSJ)
- Russia Prosecutor Seeks 6 Years in Jail for Putin Critic Navalny (BBG)
While the skeleton crew of market participants are still digesting yesterday's uber-dovish, "forward guidance" conversion by the BOE and ECB, driven in response to the Fed's increasingly tight (at least relatively) monetary policy, they now have month's biggest economic and market catalyst to look forward to. In a day which promises to be rife with illiquidity as the bulk of US market participants are within 100 feet of a sandy beach, we are about to get the number that will shape the market's mood for the next month: will the Fed's tapering planes be strengthened in response to strong NFP, or not. As Deutsche accurately points out, the curveball to throw in is that June-August numbers have tended to be seasonally weak over the whole period we have data (back 70+ years) and again over the last 10 years. Today's number is therefore going to be fascinating. A number between 150-200k is unlikely to change anyone’s opinion on the Fed whereas a number below might start to build a case for a taper delay. Above 200k and the September taper momentum will build. Such a high number (especially in a weak seasonal period) is unlikely to be great for markets but the ECB/BoE might have cushioned some of the hawkish blow for now. For the record the market is expecting 165k on payrolls and 7.5% (DB same) for unemployment. A full NFP preview post is coming shortly.
While we all eagerly await for the final 80 pips in EURUSD to trickle down before Stolper's latest "long EURUSD" masterpiece is stop lossed out in under a week and precisely in line with expectations, here comes Goldman with its latest fade reco, this time in the form of a "Top Trade for 2013" (supposedly this means an epic muppet steamrolling instead of just the occasional Kermit speed bump), namely to go long UK equities (the FTSE 100 Dec 13 futures) with a target of 7100 and a stop loss below 5950 (or 6% lower). If Stolper is any guide, this should be the easiest 6% imaginable. Of course, the hypocrisy of Goldman upgrading the UK market following its tentacle being appointed to run UK monetary policy, and the Bank Of England, with the sole purpose of boosting the UK "wealth effect" (and Goldman bonuses), does not escape us...