It has been a quiet overnight session, following yesterday's epic short-squeeze driven - the biggest since 2011 - breakout in the S&P500 back to green for the year, with European trading particularly subdued as the final session of the week awaits US nonfarm payroll data, expected at 230K, Goldman cutting its estimate from 250K to 210K three days ago, and with January NFPs having a particular tendency to disappoint Wall Street estimates on 9 of the past 10. Furthermore, none of those prior 10 occasions had a massive oil-patch CapEx crunch and mass termination event: something which even the BLS will have to notice eventually. But more than the NFP number of the meaningless unemployment rate (as some 93 million Americans languish outside of the labor force), everyone will be watching the average hourly earnings, which last month tumbled -0.2% and are expected to rebound 0.3% in January.
Between professional economists, CNBC's "Nail The Number", and Twitter #NFPGuesses, the range of today's guesses for payrolls is between 100k and 400k...
Once again the internals of the market (advancers vs decliners, new highs vs new lows and trends) triggered a Hindenburg Omen as today's dump-and-pump on the European close and Draghi 'mis-characterization and clarification' headlines left stock green with an hour to go. Then came headlines from Die Welt that appeared to show Draghi has no majority and stocks tumbled into the close (with a small bounce late to get S&P green on the week). For the 2nd day in a row, Treasury yields fell 1-4bps (short to long-end), notably decoupling from stocks after Europe closed. HY Credit also pressed to wider wides after Europe closed even as stocks surged. The USD lost ground as EUR strengthened giving back half the week's gains (USDJPY broke 120 early but faded). Copper and Silver gained modestly, gold was flat, but oil prices slipped 1% lower back below $67. VIX briefly tested below 12.2 but ended the day barely higher at 12.6.
- Banks to Pay $3.3 Billion in FX-Manipulation Probe (BBG)
- Symbolic being the key word: U.S., China sign symbolic emissions plan, play down rivalry (Reuters)
- Europe (so really Russian sanctions) is the new "snow in the winter" - Carney Sees Europe Stagnation Impact as Growth Outlook Cut (BBG)
- Eurozone Industrial Output Points to Weak Third Quarter Growth (WSJ)
- Not everyone around Abe is insane: Kuroda Ally Flags Warning on Delaying Sales-Tax Increase (BBG)
- Hong Kong to scrap daily yuan conversion limit to boost stock investment (Reuters)
- Barclays Falls After FX Settlement Delay Reduces Discount (BBG)
- Some unhappy Yahoo investors asking AOL for rescue (Reuters)
By far the scariest harbinger revealed by today's JOLTS data is seen when one looks at the openings only for manufacturing jobs, which have now declined for 4 consecutive months: the longest negative stretch in the so-called recovery. The chart clearly shows that the last time we had an identical lack of improvement in manufacturing jobs, the US economy entered a recession, or as we like to call it, a depression, just that month!
The jobs number expectation had been falling for a few days into the print this morning and despite the desperate efforts of every status-quo-hugging TV talking-head's Goldilocks scenario, it was not a good report - it missed low expectations and it seems the market is realizing (having been told the bar is very high for an un-taper) that the Fed will not rescue it any time soon. GDP expectations are also tumbling and thus the hope-driven hyper-growth stocks have been monkey-hammered. This is the worst swing for the Nasdaq since Dec 2011 (with Russell, Dow, and Nasdaq -1% YTD). Momos and Biotechs were blamed but this was broad-based selling as JPY carry was unwound in a hurry. Gold rallied above $1300 (+8.1% YTD) as bond yield ripped lower for 5Y's biggest daily drop in 10 weeks (short-end -4bps on the week). VIX pushed back above 14 (but it was clear derisking exposure - as opposed to hedging positions - was the order of the day).
Despite hope that this time is different, and after a few weeks of improvement that was extrapolated as back-to-the-status-quo for us all, initial jobless claims rose by their most week-over-week in 10 weeks, missed expectations, and hover just below the average of the last year. Not exactly the positive trend that so many would like to use to build their "so buy stocks" thesis. This follows ADP's miss and the ISM reports' internal jobs indices misses. Of course, a 'bad' claims data is great news for more un-tapering.. the bulls, let down by Draghi, now need Friday's payroll data to be truly dismal.
More snow. That is the assessment of Mark Zandi and the ADP Private Payrolls, which just printed at 139K on expectations of a 155K print. But don't worry: the number was pre-spun for idiot consumption, as the 139K was actually an increase from the January 127K. What was not said is that the January number was a massive revision lower from the previously announced 175K. What will also not be said is that the December ADP print was revised lower from 227K to 191K and the November 289K was chopped off and revised to only 245K. Of course, both of those numbers were massive beats at the time, and have now become misses, but who cares: they have served their algo kneejerk reaction purposes. And while the data is complete garbage, and is obviously manipulated and goalseeked (as we have shown before), it should be welcome to the US to know that in February it generated a whopping 1,000 manufacturing jobs. But the punchline, certainly, is this from Mark Zandi: "February was another soft month for the job market. Employment was weak across a number of industries. Bad winter weather, especially in mid-month, weighed on payrolls. Job growth is expected to improve with warmer temperatures.”
Back in September, courtesy of an unprecedented discrepancy between the JOLTS "net turnovers" (or hires less separations) print, which traditionally has been the equivalent of the NFP's establishment survey monthly job additions, we highlighted just what happens when the BLS has caught itself in a estimation lie, and is forced to adjusted the data set both concurrently and retroactively to correct for cumulative error. We suggested that as a result of this public humiliation, the BLS would have no choice but to ramp up its monthly net turnovers print in order to "catch up" to what the monthly payrolls survey indicated is America's "improving" jobs picture. Sure enough, when moments ago the latest October JOLTS survey was released, the October "net turnovers" number soared from 155K in September to a whopping 260K in October, more than eclipsing the revised NFP print of 200K job gains in October, and leading to the second highest JOLTS turnover print since February's 271K, and before that - going back all the way to the 287K in February of 2012. And yes, this was in the month when the government had shut down and the result was supposedly major, if temporary, job losses.
With the government shutdown stretching into an improbable 4th day (and with every additional day added on, the likelihood that the impasse continues even longer and hit the debt ceiling X-Date of October 17 becomes greater), today's monthly Non-Farm Payroll data has quickly become No-Farm Payroll. However, just like on day when Europe is closed we still get a ramp into the European close, expect at least several vacuum tube algos to jump the gun at 8:29:59:999 and try to generate some upward momentum ignition in stocks and downward momentum in gold. In addition to no economic data released in the US, President Obama announced last night he has cancelled his trip to Bali, Indonesia, to attend the APEC conference and instead to focus on budget negotiations back at home - which is ironic because his latest story is that he will not negotiate, so why not just not negotiate from Asia? Ah, the optics of shutdown.
With the BLS shutdown, and this Friday's NFP report indefinitely delayed, the only labor report this week would be the (highly inaccurate) anticipated ADP Private Payrolls data. Moments ago it came, and disappointed all those hoping that finally, after five years, the Fed's shotgun wealth creation strategy may be working when it not only missed expectations of 180K, instead printing at 166K with the bulk of jobs created in the service-providing sector, but excluding massive downard revisions (July from 198K to 161K, August from 176K to 159K), would have been the lowest print of the past 4 months. And while, finally, some 1000 manufacturing jobs were created in September, for the first time in over a year the high-paying financial sector saw an exodus of 4000 jobs. Wave goodbye to the "third half" 2013 recovery.
While some have argued that the Fed is flying blind, given their endless efforts to convince the market that their actions (or inactions) are now all data-dependent - what happens when that data simply does not exist? As SMRA notes, the official word from the BLS is that they are working under the assumption that there will not be a government shutdown and the employment data will be released as scheduled; but what happens if the un-negotiation reaches beyond October 1st? How will our central-planners know what to do?
The highlight of today's economic releases will be the 8:30 am non-farm payroll data, expected to print at 180K jobs, up from July's 162K, and result in an unchanged 7.4% unemployment rate. The "most important jobs number ever " is neither, because even if it comes as a wild outlier to the good or bad side, the Fed is unlikely to change its tapering intentions this late in the game. Still, it will provide fireworks in a very jittery market and if the number is far stronger than expected, expect the 10 Year to finally blow out from below the 3% range which it breached briefly overnight, and never look back, at least not until there is an August 2011 wholesale risk revulsion episode and stocks tumble. Speaking of jittery, overnight the WSJ reports that if picked as Bernanke's replscament, Larry Summers' faces an uphill battle to get the votes of three key democrats on the Senate Banking Committee (Jeff Merkley, Sherrod Brown and Elizabeth Warren). It would be only fitting that the dysfunctional Democratic dominated senate now lashes out against the president, and in the process scuttles the market's only hope of maintaining its Fed-derived gains over the past five years... And there is, of course, Syria which is becoming increasingly problematic for Obama whose support in Congress is looking ever shakier. Will he go it alone in the case of a no vote?
It is likely that he does, as he is Chinese and was a Chinese refugee who fled to Hong Kong with his family to avoid the perils of war. Refugees who flee from their homeland to start new lives in other countries tend to have a deeper appreciation of and understand the importance of owning physical gold.
Do those collecting three times the median wage really need the same SSA benefits as those with no other retirement income? The conventional answer is that any means testing of Social Security would destroy its political popularity, but in reality such means-testing would likely affect only the top (higher-income) 10% of the populace. "We wuz promised" does not apply to "pay as you go" systems, which are extraordinarily exposed to current trends and realities. It's time for America to examine the social contract/Social Security in an era of declining full-time employment and widening income inequality. We as a nation need to prioritize the Social Security retirement income of those with no other pension incomes.