From a major NY Trading desk . . .
Yesterday: What can you say
I honestly wonder what would what would have happened if we’d gotten a strong employment report on Friday. As it happened, we got a weak headline (the loss of -85,000 payrolls was a splash of cold water for those expecting something closer to flat or even positive, although in fairness we had no idea what kind of adjustments would be applied to the data), one which featured a stunning -589,000 jobs lost as measured by the more volatile but less adjusted Household survey. You know all these details by now but I’ll just throw a couple more out there (source: www.bls.gov):
1. the unemployment rate was steady at 10% but only because the number of people exiting the labor force (exhaustion, discouragement, et cetera) was proportional to the number of jobs lost;
2. temporary employment, which typically precedes permanent job growth, was a bright spot as it bucked the seasonal trend and pushed higher by 22,500 jobs;
3. the average duration of unemployment extended to 29.1 weeks in December from 28.6 weeks in November, and the median duration extended to 20.5 weeks from 20.2 weeks.
At the end of the day, however, the dollar lurched lower after the report, Treasury yields sank, and the power of the Fed compelled the equity market higher.
Tokyo was closed for Coming-Of-Age Day but the rest of Asia was open. It can only be described as a disappointing session as most markets opened higher but ground lower throughout the day (that’s right – flat is the new disappointing): Hang Seng +0.5%; Shanghai Composite +0.5%; Shenzhen Composite +0.2%; Kospi -0.1%; S&P/ASX 200 Index +0.8%; Sensex -0.1%; Straits Times Index +0.4%. There was a lot of noise coming from China over the weekend including:
1. the release of December trade data (details below in the bullets);
2. reinstated curbs on 2nd mortgage borrowing (40% down required, up from 20%, and a 10% premium over benchmark for rates, up from a -30% discount) and a vow to crack down on excessive property lending as a result of hot money inflows from abroad;
3. and, an announcement from the Ministry of Industry and Information Technology that vehicle sales reached 13.6 million in 2009, up +46% y/y (Miao Wei, the vice-minister, suggested that sales would increase by another +15% y/y in 2010).
The more stringent terms for Chinese looking to borrow to purchase a second home were widely anticipated by the marketplace, and in fact some were expecting 50% down so net-net the market reacted bullishly to the news – at least initially. Shanghai gapped higher by +3.3% on the open and finished up +0.5%. The trade data was enough to push metals prices up in Shanghai and London, and that gave the market a very metals/mining-bullish flavor. Shipping stocks were up across the region (I pasted a chart of the Baltic Dry Index, which appears to be making gradual progress toward higher levels, at the end of this note) and financials were higher in Australia and South Korea but lower in China and India. LG Display fell -4.6% in Seoul despite a renewed buy rating and upped price target at Goldman Sachs, and peer Samsung fell -2.9%. (source: Bloomberg)
• The trade balance dipped to $18.43 billion in December from $19.09 billion in November as exports and imports both soared. Exports jumped +15% m/m to $130.7 billion, a level that is 17.7% higher than December 2008 exports. Imports jumped +18.8% m/m to $112.3 billion, up 55.9% from December 2008.
• Imports from Japan reached $15.05 billion, the exact level reached at the July 2008 peak. Imports from the U.S., which had been hovering around $6 billion all throughout 2009, jumped to $9.53 billion, a new record. Imports from Brazil – a trade flow that has received a lot of press lately – stagnated at $2.16 billion, likely due to the strength of the real.
• Exports to the U.S. jumped 11% m/m to $22.21 billion, a level nearly twice that which was seen in February and a level only exceeded by the global boom months of July, August, September and October of 2008.
• The producer price index swung into positive territory (+1.8% y/y in December versus -0.4% y/y in November) on a year-over-year basis.
• House prices rose 2.8% y/y in December, better than November’s 1% y/y gain.
• Job advertisements jumped 6% m/m in December after rising 5.2% m/m in November. That marks the third gain in four months following sixteen consecutive months of declines.
• Industrial production fell -1.3% y/y in November, down from October’s 0.9% y/y increase (which was the first year-over-year increase since August of 2008) and below expectations for a 2.9% y/y expansion.
Europe is “doing an Asia” this morning, having gapped higher on the open and ground their way down to more subdued, though still higher, levels: DAX +0.6%; CAC +0.7%; FTSE +0.5%. As mentioned, metals prices are higher this morning on the weak dollar and intact risk appetites (thank you Chinese trade data). The U.S. yield curve, meanwhile, is at all-time steep levels as measured by the difference between the 10-year and 2-year yields. Swiss Life is higher by +7.2% on a report that Allianz is preparing a takeover bid for Switzerland’s largest life insurer, but financials generally are under pressure across the Continent but particularly in the United Kingdom. There doesn’t appear to be a specific catalyst for the declines. (source: Bloomberg)
• Industrial production rebounded 1.1% m/m in November from October’s -0.6% m/m decline, outpacing expectations for a smaller, 0.5% m/m expansion. The year-on-year rate improved to -3.8% in November from -8% in October.
• Manufacturing production expanded by 1.6% m/m in November, better than expectations for a 1% m/m expansion and up from October’s -0.5% m/m dip.
• Industrial production contracted by -8% m/m in November, sinking the year-on-year rate to -9.4% from October’s 3.4%.
• Real retail sales grew just 0.6% y/y in November, down from the 3.6% y/y increase seen in October and September but better than August’s -1.3% y/y decline (this is a pretty volatile series in general).
• Consumer prices (CPI) fell -0.2% m/m in December, leaving the year-on-year rate little changed at 1.4%.
• Consumer prices (CPI) increased by 0.2% m/m in December, lifting the year-on-year rate to 2% from November’s 1.5% pace. The so-called “underlying” inflation rate (which excludes motor vehicles and petrol) was steady at 2.4% y/y in December.
• Consumer prices (CPI) fell -0.3% m/m in December, dragging the year-on-year rate down to 1.3% from November’s 1.5%.
• Consumer prices (CPI) fell -0.5% m/m in December, leaving the year-on-year rate unchanged at -1.2%.
• Retail trade fell -3.3% m/m in November, dragging the year-on-year rate down to -10.1% from October’s -8.8%.
• Industrial production expanded by 1.2% m/m in November, improving the year-on-year rate to -10.8% from October’s -16.1%.
• The unemployment rate jumped to 13.3% in December from 12.8% in November.
• The unemployment rate jumped to 9.2% in December from 8.6% in November.
• Wage growth ground to a near halt in November (+0.4% y/y) after rising at a respectable 3.6% y/y pace in October. For perspective, consider that year-over-year wage growth was running at 30.7% y/y in January of 2008 and by 19.8% y/y as recently as February of 2009.
• Industrial production made it back into positive year-on-year territory in November (+1.5%, up from October’s -5.6% decline) – the first positive print since September of 2008.
• Industrial production expanded by 3% m/m in November, enough to bring the year-on-year rate up to -2.3% from October’s -18.3%.
• Consumer prices (CPI) jumped 2.6% y/y in December, up from November’s 2% y/y increase.
Key Data & Scheduled Speakers (Eastern Standard Time)
8:30 a.m. Atlanta Fed President Dennis Lockhart speaks on the economic outlook
Source for all data is Bloomberg