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Plenty of Beauty in U.S. Jobs Data Beneath Ugly Main Number

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  • Plenty of Beauty in U.S. Jobs Data Beneath Ugly Main Number

For the March U.S. employment report, with its ugly headline payrolls number, it’s what’s inside that counts.

While the gain of 98,000 jobs in a survey of businesses and government agencies was the weakest since May and below all analysts’ forecasts, many accompanying details showed a solid labor market. The jobless rate, derived from a separate survey of households, fell to the lowest in almost a decade even as workforce participation was unchanged, while a measure of underemployment reached a fresh post-recession low, boding well for further wage increases.

“Aside from the payroll data, all the other underlying details are encouraging,” said Tom Simons, an economist at Jefferies LLC in New York. “People are re-entering the labor force and it looks like they’re getting jobs right away. The participation rate being steady is encouraging there.”

The March data from the Labor Department on Friday also were challenged by weather anomalies — a storm in the Northeast during the survey week and more seasonable temperatures after two warmer months — that had economists bracing for at least some slowdown in payrolls from a strong start to the year. Weather effects probably explain about 70,000 of the difference in payroll gains between February and March, according to Goldman Sachs economists.

The reassuring figures elsewhere in the report keep the Federal Reserve on track to continue plans for two more interest-rate increases this year as the labor market continues to tighten.

“The Fed is going to look past the March weakness — they’re going to continue to paint a positive picture of the labor market,” said Ryan Sweet, an economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. “The trend in job growth remains solid and the overall economy is still doing well.”

Markets appeared to be relatively unfazed by the payroll number. The S&P 500 Index of stocks was up 0.2 percent as of 1:50 p.m. in New York.

Construction, Retail

Even so, there wasn’t much to sing about in the March payroll figures. The employment increase included a paltry 6,000 gain in construction jobs and 11,000 in manufacturing after both sectors showed big gains in January and February. Among services jobs, retailers were hit hard last month. That industry showed the weakest two months for hiring since the end of 2009, battered at least in part by the broader trend of Americans flocking to online merchants rather than brick-and-mortar stores.

But for a labor market that’s already challenged by a dwindling supply of unemployed workers, the report may be flashing more warning signs of overheating than of cooling. The jobless rate fell for what economists often deem “the right reasons” — meaning that more people were employed and fewer were unemployed — not as a result of Americans fleeing the labor force in discouragement, or retirement.

While President Donald Trump has condemned the headline unemployment rate as a “phony” measure on the campaign trail and “ridiculous” earlier this week, the gauges that his administration has favored also strengthened in March.

Treasury Secretary Steven Mnuchin has cited the so-called U-5 rate, which includes discouraged workers as well as a group called marginally attached workers, who aren’t working or actively looking for work but want a job. That rate declined in March to 5.4 percent, the lowest since May 2007. The number of discouraged workers, not looking for work because they believe none is available, fell to 460,000 for the second-lowest since August 2008.

The U-6 rate, which in addition to the U-5’s components includes those working part-time for economic reasons — meaning they would prefer a full-time job — also was a bright spot. The measure fell to 8.9 percent, the lowest since December 2007.

“The president and I have spent a lot of time talking about the U-6 number,” Gary Cohn, director of the White House’s National Economic Council, said on Bloomberg Television after the report. “We’re happy to see that number below 9 percent.”

The figures didn’t impress everyone. Barclays Plc economist Rob Martin called it “a weak report with no silver linings” and labeled the decline in the unemployment rate a “catch-up” with data from the payrolls survey. The data point to the further divergence between “soft” sentiment surveys that are strengthening and the “hard” figures that have been slow to catch up, he said.

“We look for labor markets to accelerate in the near term, but should that hope fail, we would expect activity to slow as well,” Martin wrote in a note, saying that monthly payroll gains in the 200,000 range “are consistent with continued economic expansion.”

The two-month revisions to payrolls subtracted 38,000 jobs, leaving the average so far in 2017 at 178,000. That’s in line with the 187,000 monthly average for all of last year.

Whether the tight job market triggers the long-awaited wage gains in this almost-eight-year-old economic expansion remains a puzzle. Average hourly earnings increased 2.7 percent in March from a year earlier, just a touch above the average since the start of 2016. That, more than weaker-than-expected employment, might merit more attention in the months ahead.

While wage growth is modest, “there’s no reason to panic” about the hiring figures, Sweet of Moody’s Analytics said. “All in all, it’s right around what we need” to keep up with population growth and to keep the unemployment rate steady.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Oil Prices Drop 3 Percent on Tuesday After Moderna’s CEO Comment

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Oil prices tumbled more than 3% on Tuesday after Moderna’s CEO cast doubt on the efficacy of COVID-19 vaccines against the Omicron coronavirus variant, spooking financial markets and adding to worries about oil demand.

The head of drugmaker Moderna told the Financial Times that COVID-19 vaccines are unlikely to be as effective against the Omicron variant of the coronavirus as they have been against the Delta variant.

Brent crude futures fell $2.32, or 3.2%, to $71.12 a barrel at 0912 GMT after slipping to an intraday low of $70.52, the lowest since Sept. 1.

U.S. West Texas Intermediate (WTI) crude futures fell $2.15, or 3.1%, to $67.80 a barrel, off a session low of $67.06, the weakest since Aug. 26.

Fed Chairman Jerome Powell will also tell U.S. lawmakers later in the day the variant could imperil economic recovery, prepared remarks show.

“The economic impact is driven by fear, and by the policy response… Fear is impacting travel. There are outright bans. But also the fear of being stranded which causes travel plans to alter,” Paul Donovan from UBS said in a note.

Oil plunged around 12% on Friday along with other markets on fears the heavily mutated Omicron would spark fresh lockdowns and dent global oil demand. It is still unclear how severe the new variant is.

With a weakening demand outlook , expectations are growing that the Organization of the Petroleum Exporting countries, Russia and their allies, together called OPEC+, will put on hold plans to add 400,000 barrels per day (bpd) to supply in January.

“We think the group will lean towards pausing output hikes in light of the Omicron variant and the oil stockpile release by major oil consumers,” Commonwealth Bank commodities analyst Vivek Dhar said in a note.

Pressure was already growing within OPEC+, due to meet on Dec. 2, to reconsider its supply plan after last week’s release of emergency crude reserves by the United States and other major oil-consuming nations to address soaring prices.

“Following the global strategic reserve releases and the announcement of dozens of countries restricting travel… OPEC and its allies can easily justify an output halt or even a slight cut,” OANDA analyst Edward Moya said in a note.

Still, Citi analysts expect OPEC+ to continue to add more barrels in January.

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Omicron Worries Subside, Solid US Data, Oil Rebounds, Gold Softer, Bitcoin Rises

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Gold and Bitcoin - Investors King

By Edward Moya

Financial markets have been on a rollercoaster ride since the middle of last week.  We wanted to believe we were getting close to the end of COVID, but the latest jitters from Omicron variant signaled the inevitable COVID winter surge might already be here. Omicron is the latest COVID test for the economic outlook and we won’t have a clear picture until a couple more weeks. Friday’s turmoil looked a lot worse given the lack of liquidity, options volatility and overall frothy levels for equities.

US stocks are rebounding as optimism grows that the Omicron variant is a cause for concern, but not a ’cause for panic’ and could potentially be the catalyst needed to get more of the country vaccinated. Investors will learn over the next couple of weeks if the Omicron variant causes more severe disease than the other variants. So far the MRNA vaccines have proved effective against other variants such as delta and optimism is that even they will eventually need to get tweaked that could be done in a few months time.

Risk appetite got a boost from both the Pfizer CEO and President Biden calmed markets nerves that we won’t go back to the darkest days of the pandemic.  The Pfizer CEO Bourla said he thinks the data will ultimately show the current vaccine will protect less against Omicron but will likely still offer some protection.  President Biden said the US won’t need shutdowns to curb the Omicron variant.

US Data

Pending home sales unexpectedly surged in October as rents skyrocketed and buyers were highly motivated as borrowing costs seem poised to increase steadily as the Fed positions itself to raise rates. US pending homes sales increased by 7.5% from a month earlier, which was a 10-month high.

The Dallas Fed Manufacturing Survey came in slightly below expectations, but still showed manufacturing activity is healthy and the outlook has dramatically improved. The index for general activity came in at 11.8, a miss of the 17.0 consensus estimate and drop from the 14.6 reading in October.  The six-month outlook almost doubled to 28.6, while the raw materials price index hit a series high.

Oil

Oil prices rebounded for two key reasons: the Omicron variant seemed like it would most likely be short-term disruptive to the crude demand outlook and on growing expectations that OPEC+ will refrain from increasing production by 400,000 bpd.

The Chairman of the South African Ministerial Advisory Committee on Vaccines noted that the cases so far had all been mild, mild -to- moderate which was a good sign. As long as South Africa does not see a massive uptick in hospitalizations, optimism will grow that this new variant won’t lead to a wrath closing of borders.  Highly vaccinated countries will continue to thrive and political pressure will grow to get those countries with low vaccination rates more supplies.

OPEC+ pushed their meetings to better assess the impact of the Omicron variant, which will most likely be followed by a delay in delivering an extra 400,000 barrels a day in January. Following the global strategic reserve releases and the announcement of dozens of countries restricting travel to and from South Africa and neighboring nations, OPEC and its allies can easily justify an output halt or even a slight cut in production.

Crude prices gave back some its gains after US State Department advisor reminded traders the US could release more oil.

Gold

Gold prices remained heavy as Omicron panic eased, the dollar rally returned, and after another round of strong US economic data. Wall Street is quickly shaking off last week’s de-risking theme that triggered safe-haven demand for bullion. President Biden said economic lockdowns in response to the Omicron variant are off the table, which means gold could be in trouble if this latest variant mostly yields longer supply chain issues that might fuel the ‘inflation is persistent’ argument. If supply chain issues deteriorate even further, that could lead to faster tapering and quicker rate hikes by the Fed.

Cryptos

Cryptocurrencies are rebounding after last week’s widespread panic-selling from the Omicron variant blew past many stops. The crypto selloff was an overreaction and buyers are quickly reemerging as traders reassess the impact of a new coronavirus variant. Bitcoin is a part of today’s broad risk rally that stemmed from easing COVID fears but will likely struggle to completely get its groove back until vaccine efficacy results in the coming weeks confirm highly vaccinated countries are going back to lockdown mode.

Bitcoin rose 3.5% to $58,284, which makes the year-to-date gain at 101%. Ethereum is back above $4400 and is almost 500% higher this year. The top two cryptos seem like they may consolidate here, but if the Fed accelerates their taper plans and prospects of rate hikes grow, a return to record highs seen earlier in November will be hard to do.

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V For Volatility

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By Jeffrey Halley, Senior Market Analyst, Asia Pacific, OANDA

The buy-the-dip mafia was out in force yesterday, with a fair bit Friday’s Wall Street and European equity sell-off unwound, as well as Friday moves in bond, currencies and commodities and energy. Notably, it hasn’t been a complete reversal by any means, as the world settles into a choppy holding pattern, for clarity about just worried, or not, we should be about the new Covid-19 omicron variant.

President Biden attempted to sooth nerves overnight, but what really drove the retracement were anecdotal reports from the South African medical establishment suggesting that symptoms were milder than delta. Always ready to selectively edit the facts to fit the prevailing market sentiment, cases popping up in multiple locations around the world (they were probably there already), kneejerk travel bans on travellers from Southern Africa (there is no evidence it originated there, they just reported it first), and in the case of Japan, all foreigners, and WHO warnings that the new variant posed a “very high” risk, were mostly ignored by investors worldwide. The fact that markets haven’t completely unwound the Friday meltdowns at least suggests a modicum of caution remains.

To be fair, having been scared by delta, much of Asia is still in ultra-cautious mode, as their recovery was only just gathering steam with borders being tentatively reopened. And one can’t blame national governments for shooting first and asking questions later, after paying the price so badly for their delta complacency earlier this year. Whether that escalates into wider restrictions than a ban on travellers from Southern Africa also remains to be seen.

It will likely be a couple of weeks before the great and good of the global scientific community can make a definitive judgement on how serious the omicron variant is. That means December is likely to be choppy and driven by omicron headlines, and the heavyweight data calendar this week, will be rendered irrelevant. All that will matter is whether more restrictions are coming back around the world, and whether central banks, especially the Fed, hit the pause button on monetary tightening plans. I already know the answer to that one. The big winner this month will be volatility, we should see plenty of it. But with markets selling everything on negative omicron headlines and clasping at the most tenuous of straws to buy everything back on any perceived positive headlines, investors looking for thematic direction moves this month, are likely to be sorely disappointed.

Markets got nothing out of the stream of Fed speakers overnight, who seemed to be going out of their way to avoid thoughts on omicron-world monetary policy. We have had some heavyweight data from Asia today though, although as I have just mentioned, it has been largely ignored. South Korean and Japanese Industrial Production was released, with the YoY data outperforming, while the MoM prints disappointed. South Korea falling -3.0%, while Japan rose on 1.10%. Electronics continued to perform well, but automotive and transport suffered due to the semiconductor bugbear. A cynic might say that the recoveries in both countries are stalling, much like the recent data from China suggests.

Speaking of China, official Manufacturing and Non-Manufacturing PMIs were released for November this morning. Manufacturing PMI managed to recover marginally into expansionary territory, creeping up to 50.1. that follows a sharp rise in Industrial Profits over the weekend, with metals refining and energy, unsurprisingly, leading the way. The data suggests China isn’t out of the woods yet though, although you wouldn’t bet against them. Non-Manufacturing PMI held steady at 52.3, with Covid-19 restrictions potentially offset by Singles Day. The general PMI rose sharply from 50.8 to 52.2, and overall, the data suggests an improvement driven by an easing of China’s power crunch and a slight easing in lending criteria to the property sector. The data is steady, rather than spectacular, and I won’t e breaking out the champagne yet.

We have a raft of GDPs across the Eurozone, as well as Eurozone November Flash Inflation, and German Unemployment this after. In the US, we have the Case-Shiller Home Price data, ad well as CB Consumer Confidence and both Janet Yellen and Jerome Powell are testifying on The Hill I believe. Sadly, unless Mr Powell says the taper will stop if omicron is serious, all of this be ignored. V is for volatility, and there is only one story in town this week, and it is invisible to the human eye.

Wall Street rebound lifts Asian equities.

Asian equity markets mostly ignored the sharp rally in US index futures yesterday morning, but with the rally consolidating in OTC markets in the US and Europe overnight, Asia feels confident about dipping its toes in the water today, although the gains are not universal. On Wall Street, investors unwound much of Friday’s sell-off drama, and despite the tenuous reasoning behind the move, always respect momentum.

The S&P 500 rose 1.32%, the Nasdaq leapt 1.88% higher, while the Dow Jones turned in a respectable 0.65% gain. In Asia, the FOMO mafia have continued pushing index futures higher with Dow futures lifting by 0.25%, and S&P 500 and Nasdaq futures booking 0.10% gains.

After a stunning downside reversal late in the Tokyo session as the government banned entry to all foreigners, the Nikkei 225 is doing what it does best today, following the Nasdaq. Softer Industrial Production data has tempered the gains, but the Nikkei 225 is still 0.60% higher. However, South Korea’s Kospi is 1.05% lower after the government shelved plans to relax Covid-19 restrictions, highlighting once again, what is really driving markets right now. Meanwhile, Mainland China markets have edged higher, the Shanghai Composite and CSI 00 rising by just 0.15%. The casino sell-off persists in Hong Kong today, the latest sector in the Chinese government spotlight, leading the Hang Seng to shed 1.20%.

Across the region, Singapore is unchanged, unable to shake of PM Lee’s comments that Covid-19 freedoms could be rolled back if necessary. Kuala Lumpur though, has risen by 0.55% with Jakarta rising by 0.40% and Bangkok climbing 1.05% as investors build a tourism premium back in once again. Manila has fallen 1.0% while Taipei has rallied by 0.80%. Australian markets, never short of herd-like optimism, or a proclivity to slavishly follow Wall Street, have rallied strongly. The All Ordinaries is 1.10% higher, while the ASX 200 has risen by 0.80%.

European markets reclaimed some losses overnight, and the price action in Asia will likely inspire more buying initially. The same is likely on Wall Street as the pull of the FOMO remains irresistible. I would caution, however, that we are just one negative omicron headline from the whole rally everywhere, evaporating into thin air.

Currency markets remain much more cautious.

Currency markets were volatile overnight but notably, the recovery rally in the US Dollar ran out of steam. US yields rose only slightly after Friday’s sharp falls. The dollar index rose nearly 50 points to test 96.50 intraday but retreated to finish just 0.13% higher at 96.19. In Asia, the last of those gains have been unwound, the index falling 0.08% to 96.11. The index looks like to trade in a choppy 95.75 to 96.50 range over the next few sessions.

Notably, Euro, Sterling and Yen all fell slightly overnight while the Swiss Franc still managed to record gains, as did the Chinese Yuan and Canadian Dollar. EUR/USD is back to 1.1300, with GBP/USD at 1.3325, while USD/JPY is holding steady at 113.65. USD/JPY will find a recovery back above 114.00 challenging this week. AUD/USD and NZD/USD booked modest gains to 0.7145 and 0.6825 overnight, suggesting caution prevails in the G-10 space regarding omicron, and both antipodeans are only just holding above their 2021 lows still at 0.7100 and 0.6800.

USD/MXN and USD/ZAR fell sharply overnight, and that sees the US Dollar is moving lower across the board versus Asian currencies today, helped along by a fall by USD/CNY to 6.3715. USD/KRW, USD/MYR, USD/INR have fallen by 0.25% while USD/SGD and USD/THB are holding steady.

In the G-10 space, currencies appear to be reflecting some well-deserved caution towards omicron still, as usual, refusing to indulge in the mindless FOMO price action in the equity space. However, in the Asian regional space, local currencies appear to be pricing in the likelihood of a slower Fed taper, or even a halt to it thanks to the new variant. It is hard to argue with either thesis at the moment.

That suggests that a lower than expected Non-Farm Payrolls number on Friday is likely to see strength in the emerging space, rather than the DM space versus the US Dollar. And omicron will likely mute any strong dollar effects from a higher than 500k print on Friday. Like other asset classes, markets will be on tenterhooks for the latest omicron headlines across the news ticker.

Oil’s recovery hits an OPEC+ wall.

Oil managed to claw back some losses overnight, but the price action was far from impressive. Brent crude left higher initially, climbing over 5.0% intra-day, but gave back almost all those gains to finish just 0.74% higher at $73.40 a barrel overnight. WTI fared slightly better, closing 2.75% higher at $70.05 a barrel, and reclaiming its 200-day moving average. (DMA) In Asia, both contracts have added another 0.80% to $73.95 and $70.55.

Brent crude appears to have a higher beta to the OPEC+ meeting, logical given it is an international pricing benchmark, whereas WTI is very much US-centric. Overnight, Russia said that other members had not contacted it regarding halting production increases at the full OPEC+ meeting later this week, and that seems to have capped Brent’s recovery. Things move quickly in OPEC+ circles though and I remain of the opinion that the odds of a temporary halt to production increases is well above 50% now, especially with OPEC+ compliance already above 100%, suggesting limited swing capacity anyway.

That said, Friday’s lows still feel like the bargain of the year if you were an oil buyer, speculative or physical. Rather than second-guessing OPEC+, I am content to watch from the side-lines from here, as oil markets will be more vulnerable than most omicron headlines and violent swings in sentiment. Heightened volatile means that long or short, you P and L can still be nought.

The respective 200-DMAs at $72.70 and $70.00 a barrel should provide some support, if for no reason that a fall to those points will send the relative strength indexes (RSIs) into oversold territory. Above, some resistance should be found at $77.00, and $74.00 a barrel respectively.

Gold looks unimpressive.

Gold’s price action continues to underwhelm, as it finished the overnight session down 0.46% at $1785.00 an ounce, before eking out a 0.20% gain to $1788.50 an ounce in Asia. There are zero signs of any safe-haven bids emerging to shelter from virus volatility, and it is falling despite both US yields and the US Dollar also falling. Gold has now closed below its 50,100 and 200 DMAs clustered between $1791.00 and $1792.50 an ounce.

Gold will have resistance at $1800.00 and $1815.00 to start the week, while yesterday’s spike to $1770.00 an ounce, will provide initial support. In between, gold may find some friends around $1780.00. Failure of $1770.00 signals a retest of $1760.00 and $1740.00 an ounce. Friends are what gold needs to find quickly though, and I do not rule out a move lower to $1720.00 this week, especially if the Non-Farms puts the Fed taper back in the spotlight and we have a lull in virus headlines.

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