In perhaps the under-statement of the year, BofA's Economics group note that "May's unemployment report was a disappointment" with evidence of a weather reversal and weakness concentrated in construction, leisure, and temporary help. Pointing out that "This is the recovery of fits and starts", BofA believes we are entering a slow patch in the second half of the year. They do not see this report as sufficient to prompt Fed action in June, but it makes August QE increasingly likely. The weakness in the US data is overlapping with an intensifying crisis in Europe, which means the risk-off trade continues.
Just in case someone did not get the earlier BLS-doctored message, the final two economic indicators of the day just printed and were... drumroll... misses. Because remember: not only the 1%ers but the 99ers have to be begging Bernanke to print. And so he will: ISM Manufacturing prints at 53.5, down from 54.8, and expectations of 53.8. Prices Paid plunge by 13.5, but the kicker: 5 out of the ISM's 10 sub indices are now in contraction territory.. And the cherry on top: Construction Spending unchanged from an upward revised 0.3 to 0.3, obviously, missing expectations of a jump to 0.4. Looking forward to the Tim Geithner Op-Ed: "Welcome to the recession."
Europe was leaking on slower growth expectations and ongoing pain in Spain but the US NFP print hit it while it was down and stumbled the already-underperforming German DAX - now down almost 4% on the day. Interestingly the Italian and Spanish yields and yield spreads are compressing modestly (doesn't seem at all clear why unless desperation has brought the rest of LTRO money off the table among Spanish banks - though Bund relative weakness may explain it - though rumors of ECB buying are out - after 4 months off). Bunds are underperforming notably as 10Y TSY - 10Y Bunds drops 7-8bps from this morning's highs - did another safe-haven just get dissed?
Gold has jumped over $50 post-NFP, now back over $1600. Maybe, just maybe, as we have been saying since January 1, 2012 is a carbon copy of 2011, and the NEW QE is coming now that only central planning can sustain an epic economic collapse (for a few months at least)?
The best news of the day is that the world just can't wait to pay off Swiss government debt by "buying" Swiss government debt with its -30 bps yields.
And we have NEW QE liftoff, just as we predicted yesterday: "That the ADP would miss today's expectations of 150K is no surprise: after all as we have been explaining for a while, the only way the Fed will have a green light to proceed with NEW QE if it so chooses at the June 19-20 meeting, is if the economic data suddenly turn horrendous. Which means tomorrow's NFP data is make or break: in fact, as far as markets are concerned, the worse the better - should a -1,000,000 NFP print come in, stocks will soar." It may take a little while for the realization to soak in. The actual number of +69,000 was a massive miss to both the expectation of 150,000, and the whisper number 100,000, and a drop from the massively revised April 77K, which was 115K before. And that is with a 204,000 addition from Birth Death. Just a total disaster for Obama who has decided to sacrifice the perception of an improving economy just so he can give Bernanke a green light to goose the stock market.
The market was anxious going in to the NFP print but once the dismal data point hit, things deteriorated rapidly.
Pre-NFP ->EUR 1.2322, ES 1292, WTI $84, 10Y 1.51%, 30Y 2.59%, gold $1554
Post-NFP -> EUR -10pips 1.2312, ES -10 1282, WTI -$1.2 $82.8, 10Y -5bps 1.46%, 30Y -7bps 2.52%, gold +$18 $1572
Treasury yields at record lows (10Y well below and 30Y right at Dec08 lows) as Gold pops (QE hope?) but stocks don't for now (reality of QE's inability to really help?). Oil down on global growth markdowns and EUR modestly weaker (choppy but practically unch now) - though looks like its all relative printing expectations now.
“Gear up!” That is what I say to you this morning. Open your closet door, drag out the flak jacket from 2009, lace up your boots, unlock your guns, bring out the ammo and get ready to go at it one more time because the placid fields of Verdun, long silent, finds the Germans and the French at it once again and we are all about to be dragged back into it; like it or not. There is quite serious business afoot and, just like in war, the political statements made are nothing more than propaganda to mislead the enemy and the enemy is YOU.
- Germany shifts, gives Spain more time on deficit (Reuters)
- Europe must prepare an emergency plan (FT)
- EU Spain reveals €100bn capital flight (FT)
- Spain’s Guindos says future of Euro at stake in Spain (Bloomberg)
- ECB, EU officials warn euro’s survival at risk (Reuters)
- China can ‘cope’ if Greece exits Euro, NDRC Researcher says (Bloomberg)
- Japan Warns Against Rising Yen (WSJ)
- Global stocks investors head for exits (FT)
- Hot Copper Shorts Burning Commodity Firms (Caixin)