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By Andrew Zeitlin of SouthBay Research

March NFP 215K: Retail stick-save as Signs of Weakness Pick Up

A broadening Industrial recession was offset by solid service payrolls, led by Retail. Taken at face value, the breadth of growth signals a steady-as-she-goes economy.

But there are reasons to doubt the figures, starting with Retail. In the BLS model, retail is hitting a major growth spurt unlike anything seen in a decade.  In the real economy, the Retail sector’s growth is slowing.

Also troubling is the continued contraction in temp worker payrolls. Sometimes that’s a sign of conversion of part-time workers to full-time workers, but that’s not what’s going on.   Even one-offs like Personal Laundry (+5K) and Landscaping (+12K) couldn’t push Private Payrolls above 200K

Industrial Recession Broadens

SouthBay View coming into March: Energy sector cuts at slower pace, Manufacturing Cuts at faster pace

Actual: Energy sector (-12K), Manufacturing (-29K) compared with (-8K) in February

Key point: Payrolls dropped in almost every manufacturing sector, and machinery led the way (-6K).  A strong sign that 2H Industrial production is poised to contract further as investments in factory production are dropping at a faster pace.

Retail Was Strongest Factor +48K: Dubious Achievement Award

BLS sees a Retail Renaissance

Despite a lackluster holiday sales season and massive big box store closures, despite major 1Q hiring companies like Home Depot reporting flat hiring plans, the BLS model reports 181K payrolls added in 1Q 2016. 

To put that into context:

• Best 1Q ever
• Better than the entire annual Retail payroll growth for 2014; 2/3s the level of 2015

Fewer stores than ever, more big-box store closings, weak sales.  And yet, most hiring ever.  Hmmmmm…..

This is shown in the chart below:

* * *

Elsewhere:

Employment Services Negative 2 months in a row
Demand for temp worker support continues to slump.  (-6K) in March

Healthcare remains Strong:  +44K

Leisure & Hospitality remains Strong 40K
As expected slight easing in the Restaurant payroll adds (from 37K in February to 26K in March)

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When last we checked in on the 1MDB saga, Goldman was busy tying up a few loose ends.

Tim Leissner, the banker who built the firm’s Southeast Asia operation from the ground up and the man behind a series of questionable deals that funded what would eventually become Malaysian PM Najib Razak’s personal slush fund, was essentially forced out in January, after bank investigators uncovered what they said was an unauthorized reference letter.

Apparently, Leissner tried to secure an internship for the son of a possibly shady businessman tied to an Indonesian copper mine. The story is absurd on all kinds of levels, but rather than recount the entire thing for the umpteenth time, we’ll simply give you the Cliff’s Notes version courtesy of Bloomberg:

Last year he was in talks to provide financing for a group of investors, including Sudjiono Timan, who were seeking to buy a controlling interest in Newmont Mining Corp.’s copper operations in Indonesia, according to two people familiar with the deal who asked not to be identified discussing confidential information.

 

Timan, whose ties to the Newmont deal haven’t been previously reported, was convicted on corruption charges in 2004. Even though Indonesia’s Supreme Court reversed the conviction in 2013, before the Newmont deal took shape, Goldman Sachs told Leissner it wouldn’t move forward on the transaction as long as Timan was a sponsor, the people said. Timan withdrew as an investor but acted as an adviser to the remaining sponsors, according to the people. When the New York-based bank learned of Timan’s continuing involvement, it decided not to proceed, they said.

 

 

The deal committee reviewing the transaction opted against it, one of the people said, in part because the bank didn’t think Leissner provided enough information about Timan’s involvement. When Goldman examined Leissner’s messages after pulling out of the Newmont deal, it discovered he had used the firm’s letterhead to write a reference letter in violation of company rules, according to the person.

Frankly, that story is the worst kind of nonsense. Only a complete simpleton would believe that a man who at one time was one of the bank’s most revered and powerful executives (at least as it relates to the Squid’s overseas ops) was fired because he used the firm’s letterhead on a reference letter. Furthermore, the idea that Goldman Sachs is allergic to deals that have ties to corrupt individuals is laughable.

The real reason Leissner was let go is simple: he effectively helped to create 1MDB, which is now at the center of a global corruption probe being conducted by more regulators and investigatory bodies than you can count on both hands. Goldman wants nothing to do with it, or as little to do with it as possible, and that means getting rid of the man who started it all by floating two bond deals that financed what was supposed to be a development bank, but which turned into a checking account for Malaysia’s prime minister.

Anyway, it’s not just Goldman that’s involved. On Friday we learn that the DoJ has now asked Deutsche Bank and JP Morgan to explain their own dealings with 1MDB. “JPMorgan and Deutsche were not the target of the investigations at this stage, but had only been asked to provide details,” Reuters writes, before adding that “Singapore’s central bank has also asked financial institutions to provide details of any transactions linked to the Malaysian fund.”

“As part of its investigations into possible money-laundering and other offences in Singapore, (MAS) has been conducting a thorough review of various transactions as well as fund flows through our banking system,” the country’s monetary authority said in a statement. “MAS has requested a number of financial institutions to furnish information relating to the review.” Meanwhile, Luxembourg’s state prosecutor is also investigating 1MDB and you’ll never guess who’s under the microscope (ok, maybe you will): 

• EDMOND DE ROTHSCHILD BANK SAYS IT’S COOPERATING WITH LUXEMBOURG 1MDB PROBE

 Here’s a bit more from from Bloomberg on Deutsche and JPMorgan:

One bank received an instruction from the Justice Department not to destroy related documents dating back to 2009, the year 1MDB was created, according to a person familiar with the matter, who asked not to be identified because the information is confidential.

 

Deutsche Bank Malaysia and JPMorgan’s involvement with 1MDB can be traced back to 2009 when they facilitated fund transfers for the company, according to the person familiar with the matter. Deutsche was also hired as one of the advisers for an initial public offering of 1MDB’s power assets in mid-2014, which never materialized because of an unfavorable market. It also gave a $975 million loan to the company two years ago and 1MDB settled it in 2015.

 

Authorities from around the world — including in the U.S., Luxembourg, Switzerland and Singapore — are trying to piece together evidence to determine if some of the billions of dollars that 1MDB raised since 2009 were siphoned out of its coffers and into the personal accounts of politically connected individuals.

Allow us to save “authorities from around the world” some time: yes, “some of the billions” were indeed “siphoned” out of the fund and “into the personal accounts of politically connected individuals.” Politically connected individuals like Najib himself who, along with his controversial wife Rosmah Mansor (who is friends with Leissner’s spouse Kimora Lee), spend lavishly on all manner of luxury goods (if you ask him, Najib will tell you the $681 million that ended up in his bank account didn’t come from 1MDB but was in fact a “donation” from some very generous Arabs). 

Najib and Mansour, for instance, spent $130,625 on one trip to Chanel while vacationing in Honolulu in 2014.

Two days later, Najib played 18 holes at Kaneohe Klipper with President Obama. That, according to WSJ, is a true story.

via Zero Hedge http://ift.tt/1RRE7gU Tyler Durden

The FOMC may have cut its rate hike forecast from 4 to 2, following by an even more dovish speech by Janet Yellen, but Goldman is convinced the Fed is wrong. As a result, after looking at today’s payrolls report, its chief economist Jan Hatzius said that “we ultimately think the committee will move faster than the two-hike pace implied by the latest “dot plot”, despite the dovish signals from the March meeting and Chair Yellen’s remarks this week” and that “we continue to expect the FOMC to raise rates three times in 2016.”

This means rate hikes during all the upcoming FOMC meetings that have a conference: June, September and December.

Here is the full note:

Another Solid Employment Report

BOTTOM LINE: Nonfarm payroll employment rose by a solid +215k in March and the household survey’s measure of employment rose 246k. The unemployment rate rose to 5.0% due to a one-tenth increase in the participation rate. Average hours were unchanged while average hourly earnings rose 0.3%. We have made no changes to our Fed call, and continue to expect the FOMC to raise rates three times in 2016.

MAIN POINTS:

1. Nonfarm payroll employment increased by 215k in March (vs. +205k consensus), a slight deceleration from an upwardly revised +245k in March. Employment gains were relatively broad-based, led by solid gains in service sector jobs (+199k). Warmer than usual March weather may have provided a slight boost to sectors most sensitive to weather: construction (+37k) and leisure and hospitality (+40k) employment were both firm. The other goods-producing sectors of the economy were slightly softer, as manufacturing (-29k) and mining and logging (-12k) continued to shed jobs in March. Government employment rose 20k.

2. Average hourly earnings rose 0.3% in March (vs. +0.2% consensus), raising the year-on-year growth rate to 2.3% from 2.2%. Aggregate weekly payrolls—the product of employment, average hourly earnings, and average weekly hours—rose 0.4% on the month as the average workweek held steady at 34.4 hours while average hourly earnings rose 0.3% (mom).

3. The household survey showed a gain in employment of 246k in March, following an increase of 530k in February. Despite the strong gain in employment, the unemployment rate rose to 5.0% (5.001% unrounded) due to a one-tenth increase in the labor force participation rate to 63.0%. The participation rate has now risen 0.6 percentage points since September. The U6 underemployment rate rose to 9.8% from 9.7% due to the entrance of new job seekers to the labor force.

4. We have made no changes to our Fed call, and continue to expect the FOMC to raise rates three times in 2016. The economy is close to full employment and growth continues to hold up well, financial conditions have eased substantially since earlier this year, and core inflation has firmed. Thus, we ultimately think the committee will move faster than the two-hike pace implied by the latest “dot plot”, despite the dovish signals from the March meeting and Chair Yellen’s remarks this week.

via Zero Hedge http://ift.tt/1SFqzFp Tyler Durden

In March the US economy added a healthy 215K jobs, beating expectations and more importantly, pushing the average hourly earnings up by 0.3% on the month. Which, however, is curious because a cursory look at the job additions in the month reveals that nearly two-third of all jobs, and the three top categories of all job additions, were once again all minimum wages jobs.

• Education and Health: 51K
• Retail Trade: 48K
• Leisure and Hospitality: 40K

Just these three top sectors (as shown in the chart below) accounted for 65% of all job gains. This “growth” of minimum wage labor took place while some of the highest paying jobs, including mining and logging, manufacturing and transportation and warehousing all posted declines in March. The only silver lining was that construction jobs posted a healthy 37K bounce, while government “workers” added a solid 20K.

 

And, it bears repeating once again, that in a month in which all sentiment surveys showed a steady rebound in manufacturing, the US economy actually lost the biggest number of manufacturing workers since 2009.

via Zero Hedge http://ift.tt/1N03oB7 Tyler Durden

Via Mint's Bill Blain's Morning Porridge,

”A common mistake when trying to design something completely fool-proof is to underestimate the ingenuity of complete fools..” 

First day of a new quarter, and it feels like we have an answer to the all-important question of the modern age: how many Euro 100 notes can you squeeze into a Chinook (a very big and noisy helicopter). The second part of the question is – what’s the right height to optimally helicopter drop an economy? I discern a disturbance in the force as a mounting number of learned articles discuss these critical issues.

Yet, the answer may be extraordinarily simple.

For the last couple of months rumours have been circulating of “extraordinary” monetary policy discussions within the bowels of the ECB. We’ve been told “radical” new measures will build upon, and complete, the work already achieved over the last 5-yrs by the ECB in supporting European stability and growth. (Growth? Really?)

We’ve heard it all before: the ECB promises much and delivers less..

However, yesterday’s widely circulated leaks from within the Frankfurt behemoth suggest the ECB’s new secured consumer lending programme could be transformational. Yesterday’s ECB leak highlights the gnomes of Frankfurt may have stumbled on the ultimate truth of helicopter economics – you don’t actually need a helicopter.

Apparently, Draghi has even secured grudging support from Wolfgang Schauble for the proposed extension to their Asset Purchase programmes. The leaked preamble guffs about how it “build on the measures announced at the last meeting”. The rest suggests the new consumer asset backed asset purchase programme, CABAPP, will be announced by Draghi following the April 21 meeting – but probably won’t be enacted until early Q4.

While efforts to stimulate lending to Europe’s SME sector through securitisation programmes have proved difficult because of the blocks imposed by regulators on ABS, its certain borrowers will be more receptive to the much simpler new consumer lending finance package.

Following yesterday’s leaks, ECB spokesperson Vabara Hasiin declined to provide further details of the ECB’s plan to directly buy secured consumer lending assets originated through European banks and platform lenders – but by then the cat was out the proverbial bag.

Yesterday’s leaks confirm the ECB’s plans will effectively give Europe’s consumer lenders access to unlimited zero-cost finance – going far further than the free money showered on them by the multiple previous TLTRO financial packages.

Under the proposed scheme, European banks have the option to issue their clients a new branded European Banking Union debit card – which will have a raised ECB logo to make it meet EU regulations for visually-impaired users. Although these will still bear the names and logos of the “originating banks”, these will be directly financed from the ECB on a pass-thru basis. Banks will be paid a minimal fee for “labelling” and originating the new ECB debit cards.

At first glance, it looks like European retail repayment risk goes straight onto the ECB’s books – which would be “extraordinary” indeed. But, one of the cornerstones of the new CABAPP policy will be credit loss control.

While banks will be free to choose the rate they charge new card holders, the actual interest rate will be close to zero. The ECB will make it clear to banks they are expected to stimulate consumer spending through the lowest possible personal lending rates. One earlier proposal was for the ECB to issue its own debit cards off a new Fin-Tech lending platform, but this was opposed by French and Italian regulators on the basis of protecting existing European retail institutions.

German objections to the ECB effectively taking long-dated consumer lending risk were overcome via two points. Firstly, losses will be transferred off the ECB’s balance sheet by the ECB itself buying NPLs off the programme and holding these to maturity on the bank’s banking book. The ECB could then write these off at a stroke of a pen on their imaginary cheque book as an inflation management tool. The second concession to Berlin is the establishment of a new EU-wide Financial Recovery and Advisory Group to be based in Berlin: FRAG.

Of course the ECB’s true genius lies in the creation of digital helicopter money. By making the fixed interest rate on the cards effectively zero, the duration of the debit card loans effectively perpetual, and giving borrowers an interest only repayment option… well… there will effectively be no substantial losses.

The net effect of the new CABAPP policy will be unlimited cheap retail financing for consumers across the EU area. Although we were hoping for the sound of fully-loaded Chinooks and Augustas across Europes, the only sound we’ll hear will be the cha’ching of retail tills.

Although rates will effectively be zero, spending on the cards will be carefully controlled via variable drawdown limits, set on a tiered system. The lowest limits will be set on blue cards which will be available to the bulk of the population, silver cards to those in gainful employment within the Eurozone, gold cards to higher earners and spenders, while the top level Black Cards will be reserved for the EU nomenklatura and their families.

An additional positive effect for the EU is card holders being linked directly to the ECB, creating political advantages by forging close links between Europe’s population closely to their central bank. The leaked documents show a new slogan: “One Europe, One Euro, One Bank, One Banking Union” will be used to market the programme.

Another refinement of the scheme is that it won’t only be open to banks – but also to consumer lending platforms across the EU. This is seen as an effective way of reaching the swathes of European residents not covered by conventional banking. New immigrants will be encouraged to apply for EBU Debit Cards at their entry point – the basis being “high-spending asylum seekers should contribute to Europe’s growth through increased consumption”, according to yesterday’s ECB leak.

The new cards will not be available in the UK.

The Bank of England said ask Boris or Nigel why not. Only joking.. they were miffed they hadn’t thought of it themselves..

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Following China's miraculous PMI jump back into expansion, Markit reports US Manufacturing also rose to 51.5 in March (despite the biggest drop in manufacturing jobs since 2009). As Markit details, output growth is unchanged from February’s 28-month low, and prices charged decline amid further drop in input costs. ISM Manufacturing also jumpedfrom 49.5 to 51.8 – the first 'expansion' in 7 months. Finally, we note that ISM Prices Paid exploded higher (from 38.5 to 51.5) – the biggest jump since Aug 2012.

"V"-shaped recovery in ISM Manufacturing

 

ISM Prices Paid saw the biggest 2 month spike since June 2009….

 

All of which occurred as the manufacturing sector lost more jobs in March than at any time since 2009…

Every ISM Respondent thinks everything is awesome…

• "Unemployment rate is low in our county, making it hard to find workers. We are understaffed and running lots of overtime." (Plastics & Rubber Products)
• "Business in telecom is booming. Fiber plant is at capacity." (Chemical Products)
• "Current trends remain steady. No issues with delivery or costs." (Computer & Electronic Products)
  "Capital equipment sales are steady." (Fabricated Metal Products)
• "Requests for proposals for new equipment [are] very strong." (Machinery)
• "Government is spending again. Have received delivery orders." (Transportation Equipment)
• "Things are starting to pick up. Our business is seasonal and it is that time of year." (Printing & Related Support Activities)
• "Business conditions are stable, little change from last month." (Miscellaneous Manufacturing)
• "Incoming sales are improving." (Furniture & Related Products)
• "Our business is still going strong." (Primary Metals)

Full ISM Breakdown..

 

But as Markit details, output growth is unchanged from February’s 28-month low, and prices charged decline amid further drop in input costs:

“March’s survey highlights sustained weakness across the US manufacturing sector, meaning that overall growth through the first quarter slowed to its lowest since late-2012. Subdued client spending  patterns within the energy sector, ongoing pressure from the strong dollar, and general uncertainty about the business outlook were cited as factors weighing on new order flows in March.

 

“Meanwhile, price discounting strategies resulted in the first back-to-back drop in factory gate charges for around three-and-a-half years, suggesting another squeeze on margins despite lower materials costs across the manufacturing sector."

So – to summarize, US manufacturing sector lost mopre jobs in March than at any time since 2009 BUT the managers that were surveyed by ISM and Markit proclaimed expansion is back and this puts all the pressure back on The Fed once again as more excuses are lost for hiking rates.

via Zero Hedge http://ift.tt/1ZQyYc9 Tyler Durden

When documenting Gartman’s latest flip-flop yesterday just after 12 pm, in which the “world renowned” CNBC contributor and newsletter writer finally threw in the bearish towel, a position he had stuck with since March 16. This is what he said:

We may not agree with what Dr. Yellen is proposing… and what she will pursue… or why she is proposing and pursuing it… but it is not our duty to argue and then to take positions openly at odds with her, for as the great, departed and greatly missed Mr. Marty Zweig always said, “Don’t fight the Fed.”  We have no actual net long or short position in equities, however.”

We then warned that “the rally may be on its last legs“, and at that exact moment, the S&P topticked its intraday high of the day.

Fast forward to today, when – with condolences to the bears – it appears the downside following today’s “good news is bad news” report may be limited because Gartman has, once again flipped. To wit:

The fact that all ten markets comprising our International Index have fallen is of interest for it is exceedingly rare when such unanimity of direction takes place. However, when it does and especially when it does after sustained moves previously it is usually all the more consequential. The few times that we’ve seen all ten markets move lower have almost always been followed by further and material weakness. Coupling that history with the fact that the CNN Fear & Greed Index had reached 78 at one point late last week and has turned  lower, and further given that a goodly portion of the buying this week has been of the short-covering kind following Dr. Yellen’s speech to the Economics Club of New York, and coupling those notions with the fact that the margin levels on the NYSE have turned lower, we arrive at the possibility that a major turning point to the downside is hard upon us.

So… fight the Fed after all? Under other conditions we would speculate that this is just another April fools joke report, but then again, this is Gartman.

Joking aside, we may be in for a range-bound market once again, at least until Dennis goes bullish again, and we would not be at all surprised to see the market levitate (on no volume of course) back to green by the end of the day.

via Zero Hedge http://ift.tt/1q9nkwT Tyler Durden