Wondering why we didn't push any higher on today's seemingly awesome payrolls print? Wonder no longer... The S&P 500 futures just surged up to perfectly tap the lower edge of the November 2012 up-trend. Today's volume is heavy - centred around the spike - with average trade size very large (highest in 2 months) - are pros buying the highs or selling? Do we go on to greater things and retest the upper-edge? or is this the squeeze that ends it? Who knows - but given what CNBC thinks, we will never fall again.
Quite a day. European stocks exploded on the noise of the US payrolls beat this morning. Unusually Germany's DAX outperformed (as opposed to high beta momo monkeys like Spains IBEX or Italy's MIB) taking it to its best 8-day run in 18 months (sure, why not) and within 0.25% of its all-time intraday highs (but highest close ever). All European indices surged and while euphoria reigned throughout (for some reason), European sovereign bonds leaked higher in spread (deteriorated). EURUSD reversed its losses on NFP and stabilized unch from that data point (though 55 pips higher on the day) as EURJPY was the dominating pair. German and Swiss 2Y remain negative though both saw rates rise today. Europe's VIX collapsed from 20.5% to under 17.5% today, its lowest in 2 months. Today's 'squeeze' in Europe had started early in credit and it seems stocks just played catch up when the NFP print hit.
Europe has already entered a Japanese sort of existence and America will be coming next in our opinion. We are caught in a trap of our own making and this will be the price for the printing of all of this money. As China has reached its apex and begun a gradual grinding down in their economy, as Japan wrestles with insolvency, as Europe falls further into its sinkhole; America will follow. Make hay while you can but you may also wish to notice that the fields are shrinking and that less hay may be forthcoming. Borrowers have reaped the benefits. Those with money have paid the price. Wealth that can be redeployed is evaporating. Buying power is in decline. There is always a price. The reason is simple enough; it is the consequence of what the central banks are doing.
The suicide rate among middle-aged Americans climbed a startling 28% in the last decade as the rates in younger and older people held steady. This period dominated by two stock market crashes, a real-estate crash, and a hyper-repressive Fed saw a stunning 40% surge in the suicide rate among 35-64 year old white men and women (with non-Caucasian rates steady). 39 out of 50 states registered a statistically significant increase in suicide rates among the middle-aged. As AP reports, the CDC report contained surprising information about how middle-aged people kill themselves: During the period studied, hangings overtook drug overdoses in that age group, becoming the No. 2 manner of suicide. But guns remained far in the lead and were the instrument of death in nearly half of all suicides among the middle-aged. Today's payrolls data will do little to lift the spirits of the middle-aged worker; we live in cruel and unusual times.
And now for the glass half empty part. Following the better than expected jobs report, driven by women job additions and low-paying jobs, we got the non-manufacturing ISM and Factory Orders both of which missed expectations. The ISM dropped from 54.4 to 53.1, below expectations of 54.0, and the lowest since July 2012, with the employment number dropping from 53.3 to 52. Since this number focuses on services, one has trouble footing this with what the BLS said was a jump in jobs in Services sector but one can't have anything. Elsewhere, factory orders dropped 4%, down from a downward revised 1.9% (was +3%), and below expectations of -2.9%, with March durable goods revised even lower from -5.7% to -5.8%. This was the biggest Factory Goods drop since August 2012. Of course, as Joe LaVorgna just said on a TV, it is best to just "ignore" all data that is missing expectations, or not complying with the narrative.
For those lucky enough to not be male and aged 25-54, and having been able to get a job in April, the following chart is redundant. For everyone else, curious which industries were adding jobs in April, here is the full breakdown. With the bulk of job additions in such "high paying" sectors as leisure and hospitality, temp help and retail, one can see why corporate revenues are going nowhere fast.
There were signs of anxiety yesterday afternoon when the 'most shorted' names started to levitate but this morning's exuberance has crushed the shorts and provided the ammunition to take the cash S&P 500 index above not just 1600 but above 1615 (with the cash index somewhat unusually trading at a premium to the futures). Since Wednesday's close, the Russell is up around 2%, the 'Most Shorted' names are up a remarkable 3.8% in the same time.
On the surface, the April jobs number was better than expected: in the grand scheme of things, it kept in line with the growth of the overall US labor force (which grew by 210K per the household survey) - the bare minimum in needs to keep the unemployment rate in line. A quick look beneath the surface does reveal the usual question marks, however.
Markets are reacting strongly to the (+/-200k) payrolls report. The considerably better than expected number appears to be full risk-on (despite its potential for bringing the end of QE sooner). S&P 500 futures smashed through stops and stromed above 1600 for the first time ever. Treasury yields snapped 6bps higher. Gold plunged $25 and the USD surged. JPY appears the biggest mover for now with a 120 pip swing lower. Question is... will the knee-jerk hold through the open? VIX futures are down a mere 0.3 vols on the news.
Following the March NFP disappointment, it was only reasonable to expect a modest beat in this month's data which came at +165,000, on expectations of +140,000, and also following a revision to the March number from 88K to 138K. The unemployment rate declined from 7.6% to 7.5% beating, expectations of an unchanged print. The flipside, as always, is that the labor participation rate remained flat, at 63.3%, once again the lowest since 1979.
- U.S. Bulks Up to Combat Iran (WSJ)
- Taking sides in Syria is hard choice for Israel (Reuters)
- Gold Traders Most Bearish in Three Years After Drop (BBG)
- It's a Hard Job Predicting Payrolls Number (WSJ)
- EU economies to breach deficit limits as economic picture darkens (FT)
- IBM Says U.S. Justice Investigating Bribery Allegations (BBG)
- At Texas fertilizer plant, a history of theft, tampering (Reuters)
- SAC Sets Plan to Dock Pay in Cases of Wrongdoing (WSJ) - "in case of"?
- EU to propose duties on Chinese solar panels (Reuters)
- Billionaire Kaiser Exploiting Charity Loophole With Boats (BBG)
- SEC Zeroing In on 'Prime' Funds (WSJ)
- Apple Avoids $9.2 Billion in Taxes With Debt Deal (BBG)
- China April official services PMI at 54.5 vs 55.6 in March (Reuters)
While everyone's attention this morning will be focused on the sheer, seasonally-adjusted noise that is the monthly NFP report (keep in mind that any number +/- 200,000 of the actual, is entirely in the seasonal adjustments and is thus entirely in the eye of the Arima X 13 beholder), which is expected to print at 140,000, resulting in an unemployment rate of 7.6%, there were some events overnight worth noting. First, the China non-manufacturing PMI printed at 54.5 in April, down from 55.6, and tied with the lowest such print in two years. The biggest red flag was that New Orders dropped below 50, with the price index also declining sharply, indicating that either the Chinese slowdown is for real, and the national bank will have no choice but to ease unleashing inflation, or that the politburo wishes to telegraph to the world that China is slowing, because what goes on in China, and what data is released out of China are never the same thing. Elsewhere, in Europe Mario Draghi's henchmen were stuck in damage control mode, and Ewald Nowotny said markets over-interpreted a signal yesterday that the ECB would consider a deposit rate below zero. Policy makers have “no plan in this direction,” Nowotny said in an interview with CNBC today. This helped boost the EUR from its languishing levels in the mid 1.30s higher by some 50 pips following his statement.