US jobs figures fail to bring joy to markets
AFTER another torrid week in the Eurozone, the last hope for some positive news to pick up market watchers’ spirits before a bank holiday weekend was US non-farm payroll (NFP) figures. But anybody hoping to go into the weekend on a bounce was disappointed. April non-farm payrolls came in at an anaemic 115k on Friday against a median forecast of +160k new jobs. Growth from previous months was revised up by a net of 53k, but the overall picture was of weak growth and a stagnating employment market.
DECLINING JOB QUALITY
But it is not just the weak jobs growth that is worrying. Among those new jobs, the quality of the job market is declining. Average hourly earnings are up just one cent from last month at $23.38. And with the thief in the night eroding the dollar, hourly earnings are declining further on an inflation-adjusted basis. And it’s not just pay but hours worked that are weakening. Full-time jobs fell by an enormous 812k, with the shortfall being covered by a jump in part-time jobs, up by over half a million. Take a job done by one person, split it in two and have two people do it and NFP figures are propped up, but the American labour maket is none the healthier for it. The average workweek in America is now a positively Gallic 34.5 hours a week.
FEAR INDEX ON THE UP
The big miss on NFPs fuelled market bears heading into the weekend, with the Dow dropping 100 points. The miss also saw the Vix jump nearly 10 points, up to 19.27. Known as the fear index, the Vix measures implied volatility based on S&P options pricing – as banks and hedge funds start to see signs of downside risk in the markets, they will move to mitigate risk by buying up options. The higher the expected swings in price, the higher the premiums charged by writers of options. The figure registered on Friday was close to the 20 mark – seen as the point at which fear and risk aversion are on the rise.
LEAVING SIEVE
The ZeroHedge blog pointed out another likely NFP leak in what has become a regular series, noting that in the minute before the release of the figures from the US Bureau of Labor Statistics S&P 500 e-mini futures dropped by seven points, surged and then slumped again by seven points – double the entire overnight range in the space of 45 seconds. It would not be out of the ordinary to expect moves on the e-mini ahead of the NFP results but the range suggests that somebody knew something ahead of schedule.
QE3 SPECULATION
Last week’s weak US employment figures will again ramp up the speculation that Federal Reserve chairman Ben Bernanke will resort to another round of stimulus measures – perhaps in the form of quantitative easing (QE3), with Federal Reserve purchases of Treasuries and mortgage-backed securities sterilised using reverse repos and longer-dated Treasuries in order to try and combat the inflationary effects of the measures. “Every time QE3 goes back into its box, it jumps back out,” says Marcus Bullus, trading director at MB Capital. He adds: “Further stimulus is now a possibility once again, and it’s the only thing that will keep investors in the market.”