Monday, April 5, 2010

Morning Note...

Futures +30bps higher this morning as most markets are closed globally and the full effect of Friday’s bullish jobs data is perhaps delayed.  The key takeaway is positive in the sense that the +162k reading was solid enough to exhibit growth yet moderate enough to stave off any inflationary concerns at the Fed, thus ensuring the continuation of ZIRP.  (See below for jobs commentary, including quote section.)  In corporate news, AAPL’s iPad first-day sales handily beat expectations.  Looking ahead, ISM non-manufacturing data is due at 10am today, the most recent FOMC meeting minutes will be released tomorrow, March retail sales data is due Thursday, the ECB rate decision is due Thursday (along with possible clarification of bank collateral rules mentioned by Trichet in late-March), and Q2 earnings kick off next Monday.  Overseas, plenty of news out of China, courtesy of JPMorgan research:

…the most notable headline is that the White House will delay the release of the Apr 15 FX report, a move that should allay concerns that China would be labeled a currency manipulator.  Also out of China - 1) the country won’t raise rates for “the short term” according to a report in the Wen Wei Po newspaper; the article cited Liang Meng, a researcher at the PBOC. 2) a top advisor to the PBOC said Beijing may adjust its policy of pegging its currency to the dollar provided a visit this month by Chinese President Hu Jintao to Washington goes smoothly; 3) The chairman of China Construction Bank, the country’s second largest by assets, has warned of the perils of rapid growth; 4) A Chinese central bank adviser said Beijing could ease pressure over the yuan by buying more from recession-hit U.S. states

In geopolitical news, note that global market closure may be adding to a tepid response to an attack on the U.S. consulate in Northern Pakistan.  While the attack did not damage the consulate, any such direct action will surely have a ripple effect vis-à-vis U.S.-Pakistani relations:

Three explosions, two rocket attacks and subsequent gunfire have been reported in the near vicinity of the U.S. consulate in Peshawar, Pakistan, on April 5. The attack occurred early afternoon local time when the consulate would have been full of both American and local employees. The death toll is reported at 36 but is expected to rise.

There are no assessments yet of the damage that the consulate building has sustained, but reports indicate that the explosions led to the collapse of other, adjacent buildings. Pakistani soldiers are also reported to be engaging militants in gunfire, indicating that militants are actively engaged in an attack near the area - possibly with the intention of breaching the U.S. consulate.

Many U.S. diplomatic missions (including the one in Peshawar) have a number of built in security features, such as a perimeter wall, ample stand-off distance between the buildings and the wall, reinforced concrete structure and windows and marines stationed inside to ward off attacks. While militant activity in the tribal belt of northwest Pakistan has led to regular attacks against targets of the Pakistani state, today’s assault against the consulate is an extremely rare direct attack on a U.S. target.  (STRATFOR Global Intelligence)

Regarding the jobs number, BTIG’s Mike O’Rourke provided a solid summary view:

Despite the equity market holiday Friday, market participants were fully engaged, waiting for the March BLS Employment report. Although the report fell modestly shy of the top line estimates, the underlying internals were that of a very constructive report.  The Treasury market recognized this reality within minutes of the release, and quickly sold off.  The 10 Year Treasury Yield which has been on the cusp of breaking out  for a couple of weeks finally received the positive economic data point necessary to catalyze such a move.  

Here are the important aspects of the report as we see them.  In the Establishment Survey the “easy come, easy go” census job additions were 48,000, well below the 100,000+ expected.   Private Sector jobs created totaled 123,000, above expectations.  It was the highest reading for Private Sector jobs since May 2007,  but this number was likely boosted by a rebound from the weather weakness in February.  In addition the January headline number was revised upwards by 40,000 jobs placing January in modest positive territory.  February’s loss was revised higher by 22,000 jobs.   As it stands now, three of the past five months have posted job gains, but the 5 month average is on only 23,400 jobs, well below the 150,000-200,000 necessary to start moving the Unemployment Rate lower.  While the gains are a positive sign the economy is trending in the right direction, they are hardly vigorous enough to worry about the Fed stepping up its timetable.    Another positive, was the Household Survey’s  third consecutive increase in the Labor Force since the December trough.  It is a positive sign that the unemployed are beginning to return to the labor force.  The Unemployment Rate only missed being rounded up to 9.8% by a thousandth of a percent.  Yet again it is a sign of continued movement in the correct direction, but hardly an example of robust strength.   Bullish investors could not have hoped for a more market friendly report. 

Going into the report, the anecdotal atmosphere throughout the market was one expecting profit taking on the number.  Investors appeared to be selling into month/quarter end on Wednesday, as well on Thursday in preparation for the report.  The report was one that was good enough to indicate recovery remains on track, but not too good in the sense it would adjust the FOMC’s schedule.  The equity and bond market reaction this week will be key.  Treasury yields were signaling a move higher and that is something we expected to occur on good economic data.  That being said there is the latent fear among equity investors that a push higher in market based interest rates via treasury yields will slow the economic recovery and halt the equity market rally.   We find ourselves in viewing fears about the recovery heating up, while the Unemployment Rate at 9.7% are premature.  If Treasuries break down significantly from current levels they will likely lead to a buying opportunity even if only from a trading perspective.  As such we believe that Treasury yields will are not a catalyst to sustainably restrain equities at this point in time.

For those interested in some slight caution, John Mauldin posted the following after Friday’s release:

Remember, we need about 125,000 new jobs a month to just keep up with the growth in our population. Though if you look at today's employment release, they added a whopping 398,000 people to the civilian labor force (a huge number when compared to the 162,000 new jobs - a discrepancy you didn't read about in any report.). What kept the unemployment rate from rising significantly was that they deducted 238,000 people who are no longer considered unemployed, due to the fact that they have given up looking for jobs. The U-6 unemployment rate rose to 16.0%, however. The U-6 rate includes people who have part-time work but wish they had full-time work. That part-time number rose above 9 million again this month, in a rather large monthly jump.

Note that the knuckleheads in Congress are off for a two-week Easter recess.  FT article this morning discusses global traction towards a bank levy.  PIPR ups EMC.  JNPR ups WEFA.  CREE upgrade at UBSS.  BARD ups HWCC.  GSCO ups WBMD.  RBCM ups LHCG.  DBAB cuts AA ahead of earnings next week. 

Japan +47bps overnight – other mkts closed.  Europe closed.  USD -10bps.  Gold +20bps.  Oil +125bps. 

S&P 500 PreMarket 8:30am (last/% change prior close/volume): 
MBIA INC                       6.60      +3.77% 3942
TESORO CORP               13.85    -3.75%  24917
WASHINGTON POS-B      460.00  +3.43% 200
FANNIE MAE                  1.05      +2.94% 246200
CITIGROUP INC              4.29      +2.63% 17290046
CIENA CORP                  15.47    +2.59% 1100
FREDDIE MAC                1.29      +2.38% 206325
NEW YORK TIMES-A       11.30    +2.08% 100
FORD MOTOR CO           12.89    +2.06% 844955

Today’s Trivia:  Some parts of the U.S. celebrate Easter Monday as “Dyngus Day”…what the heck is that?
Yesterday's Answer:  The “April Fools” who did not believe that the Pope moved New Year from April 1st to January 1st in 1562 were the French.     
Best Quotes:  “Just over 40% of Americans out of work now fall into the category of the long-term unemployed. More startling, the problem is markedly worse in this recession than even in the deep slide of 1981 and 1982.

During that painful recession, the overall unemployment rates were just as bad as now, but the problem of the long-term unemployed was far less acute. At the peak of the unemployment scourge in 1981 and 1982, the share of jobless Americans classified as long-term was 26%, compared to the 40% today. (The numbers would actually be worse if they included those who have simply dropped out of the work force in frustration.)

In large measure, of course, any calamitous recession is going to produce a big chunk of long-term unemployed. But in this one, the problem is especially pronounced.

One way American workers have traditionally recovered from job loss is by being mobile—that is, by being willing and able to move to where new jobs are being created. But this recession was caused, in the first instance, by a housing crisis, which also has significantly restricted workers' mobility.

Even workers willing to move find that the collapsed housing market has left their house underwater—that is, worth less than the mortgage they owe on it—so they can't absorb the loss a sale entails. Or they can't find a buyer at all. Workers are stuck because of their houses.

In addition, many families now cope by having both spouses work. So even if the main bread-winner loses his or her job, the second job of the other spouse becomes a crucial lifeline the family is loath to give up by moving to a new city.

Oh, and the places to which Americans usually flee to find hope—well, they're pretty hopeless themselves this time around. California, Nevada, Florida, the normal hot-spots of growth, all now have jobless problems worse than the nation at large thanks to their housing busts.

More broadly, and perhaps most troubling, the long-term unemployment problem fits into a long-term pattern in which the old job skills of many Americans no longer match the job requirements in an information-age economy.”

-- Gerald Seib, 4/2/10 Wall Street Journal

No comments:

Post a Comment