Month: May 2014

How can this be possible? Bond yields are at record lows and stock prices near record highs across Europe and even the ever-increasing debt-to-GDP characteristics of the perennially weak periphery are able to issue bonds willy-nilly as if nothing had ever happened. So how come 18.9 million people across Europe were unemployed in the euro area in March? Spain – actually trading at its cheapest cost of funding of all time (below 3%) – accounts for 6 million of those. As Bloomberg's Niraj Shah notes, Greece and Spain have the highest jobless rates in Europe at 26.7% and 25.3%, respectively. That contrasts with 4.9% in Austria. The overall unemployment rate was unchanged at 11.8% in March from February after the previous month’s read as youth unemployment continues to rise.

 

 

Welcome to the totally manipulated "markets" where indicators have no signal quality anymore except to perpetuate an entirely false hope that the status quo is attainable once again and sustainable going forward.

 

For a brief month or two, Spain's unemployment data fell – rekindling belief in the miracle (thanks to participation rate shenanigans) but now as yields push below 3% for the first time, it is re-accelerating….

 

Charts: Bloomberg

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And so the BLS is back to its old data fudging, because while the Establishment Survey job number was a whopper, and the biggest monthly addition since 2012, the Household Survey showed an actual decline of 73K jobs. What is much worse, is that the reason the unemployment rate tumbled is well-known: it was entirely due to the number of Americans dropping out of the labor force. To wit, the labor force participation rate crashed from 63.2% to 62.8%, trying for lowest since January 1978! And why did it crash so much – because the number of people who dropped out of the labor force soared by a near record 988K, the second highest only since January 2012 (curiously the one month when the establishment survey reported a 360K increase in jobs). 

End result: the number out of the labor force is now an all time high 92 million. What is most amusing is that the “persons who currently want a job” was unchanged at 6,146K – even the BLS said it was “puzzled why so many unemployed people are not looking for jobs.” We have some ideas.

Participation Rate:

People not in the labor force:

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Great news – unemployment rate is tumbling (stocks rally and bond yields rip higher). Bad news – unemployment rate is tumbling (for all sorts of technical reasons that are entirely fallacious and do not reflect reality at all – stocks dump)… Bonds – after 2 days of aggressive short-squeeze covering – are bouncing higher in yield and stocks not holding any bid (with gold down) as better-than-expected data headlines suggest the punchbowl is steadily disappearing over the horizon. Perhaps bonds will recover once they sniff below the surface…

 

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The “not really most important jobs data ever” is out. Here are the results:

• Jobs soar higher to 288K, far higher than expected 218K, and well above the 203K revised
• Unemployment rate 6.3%, tumbles from 6.7% and well below expected 6.6%

More shortly.

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Nigel Farage's UKIP has opened up a clear lead in the run up to next month’s elections for the European Parliament. According to ComRes, 38% of Britons certain to vote say that they would cast their ballot for the party, compared to 27% who would vote for Labour, 18% who would vote for the Conservatives and 8% who would vote Lib Dem. UKIP is damaging Conservative hopes as 67% of 2010 Tory voters are now saying they would vote for UKIP. However, it's not all rainbows and unicorns for the euro-skeptic party, as – somewhat expectedly – almost one third of Britons think that UKIP is a racist party; even as 48% believe UKIP has sensible policies.

As ComRes states:

European Voting Intention

• UKIP: 38% (+8)
• Labour: 27% (-3)
• Conservatives: 18% (-4)
• Liberal Democrats: 8% (NC)

But as ITV reports, there are some concerns…

Almost one third of Britons think that Ukip is a racist party, according to a new ITV News/ComRes poll.

 

Of the 2,052 British adults surveyed about their opinion of the UK Independence Party, 32% said they believed the party was racist. 40% disagreed with this statement and 29% said they did not know.

 

A third of the British public think UKIP are more honest than other parties

 

…

 

82% of likely UKIP voters at the European Parliamentary elections think Ukip is more honest than other political parties.

 

Britons are split about whether Ukip has sensible policies: 38% think not, but 38% think the party does.

 

Half of 2010 Conservatives (48%) think that Ukip has sensible policies.

It seems change is coming – as Farage himself noted recently…

 

"The whole European project is based on a falsehood… and it's a dangerous one.. because if you try to impose a new flag, a new anthem, a new president, a new army, a new police force; without first seeking the consent of the people you are creating the very nationalisms and resentment that the project was supposed to snuff out." Farage concludes, he is not against Europe but is "against this Europe," and this year's European elections will mark the turning point.

 

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From RanSquawk

Today’s consensus expectations:

• Change in Nonfarm Payrolls (Apr) Exp. 218K (Low 155K, High 292K), Prev. 192K, Feb 197K
• US Unemployment Rate (Apr) Exp. 6.6% (Low 6.5%, High 6.8%), Prev. 6.7%, Feb 6.7%

What the banks expect:

• UBS 180K
• HSBC 195K
• Bank of America 215K
• JP Morgan 220K
• Goldman Sachs 220K
• Citigroup 225K
• Deutsche Bank 240K
• Barclays 250K

Quick take:

• Headline expected at 218K, just below Wednesday’s ADP employment change came in at 220k, the highest reading since November
• Today’s job report is not expected to alter the course of Fed monetary policy, especially as the June jobs report will be released before the next FOMC meeting
• The April jobs report is the first this year which is not expected to be significantly influenced by weather conditions, as April was the first month since the winter that populous regions of the US did not experience a storm

Today sees the release of the US nonfarm payrolls for April, which is expected to show 218k jobs added. However, ahead of the figure analyst forecasts are quite evenly spread, with the majority lying between 195k and 230k.

The vast majority surveyed also expect the unemployment rate to decline to 6.6% from 6.7% in March, although the labor force participation rate (prev. 63.2%) has historically been a significant driver of a fall or climb in the unemployment rate.

In terms of recent data points, Wednesday’s ADP employment change came in at 220k, the highest reading since November. The ADP report shares a very similar methodology to NFP, and although the correlation has been questionned in recent months, last month’s ADP reading was just 1k below the payrolls reading at 191k. Additionally, as noted by analysts at Deutsche Bank, the ‘jobs plentiful’ component of US consumer confidence is often a strong indicator of NFP, and that figure came in lower than previous on Tuesday at 12.9% (prev. 13.1%).

An additional point to note is that April was the first month since the winter that populous regions of the US did not experience a storm. Severe weather conditions were cited as a constraint on hiring during Q1, and Wednesday’s large GDP miss (0.1% vs. Exp. 1.2%) is widely being attributed to this factor. The BLS says volatile employment trends around the spring break period, rather than weather conditions can also account for yesterday’s higher than expected initial jobless claims for the week ended April 26th. Prior to that reading, the four-week average of weekly claims was at a post-recession low.

Market Reaction

As the Fed remain on track to taper their bond buying program, and with markets sensitive to projections for the first hike to the Fed Fund Rate (FFR), focus will likely fall on the unemployment rate unless the headline is widely away from expectation. An unemployment rate outside of the main expectation range will likely see a sustained reaction, and an adjustment to the current forecast, with the first hike of the FFR currently priced in for July 2015.

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