Another nasty, jittery, week waiting for today's US employment figures

by Nicole Elliott

Overview

Another nasty, jittery, week waiting for today's US employment figures; these disappointed badly as only 39K jobs were created and Unemployment rose to 9.8%, an increase of 276K people. Eurodollar money market futures yields eased on this and Euribor ones did too because the ECB extended its three-month tenders until the end of March; not much, but at least they held back from the liquidity withdrawl they have been threatening for ages. Treasury yields moved in the opposite direction, rallying to fairly key Technical levels and then pulling back, as something of a buyers' strike and need to dump dodgy paper took hold. Oblivious to this Germany's Dax managed a new high for this year at 6,977, as did Sweden's (1,147) while Mexico's set another new record high (37,736). After gaining initially the US dollar then went on to lose a little ground against all major currencies. Front month Gasoline futures hit $2.3616 per gallon, highest since May which in turn was its most expensive in over two years, while spot Palladium hit $768 per ounce, up from $415 in June.

Political and Economic Developments

Once again there seems to be a disconnect between November Confidence and Purchasing Managers' surveys and the financial drama unfolding. Some of these measures are back up at pre-2007 financial crisis levels while spreads on some ten-year sovereign debt soared again this week to new records: Belgium (139 basis points over Bunds), Italy (220), Spain (300) and Ireland (725) while Standard and Poors put Portuguese banks on watch negative. We still have no decision as to whether they will take up the offer of a (€75B?) bailout. Spreads subsequently narrowed, helped by 'energetic' (Mr. Nowotny's description) ECB buying in the secondary market during Mr Trichet's press conference. He seems at last to have grasped the fact that markets will not be placated with platitudes, he pointed to the positives in the 'real' economy (what, as opposed the fictitious one inhabited by accountants?) while not promising anything concrete on peripheral Eurozone countries. Interestingly he also tried to shift the spotlight currently trained firmly on all 27 EU members. He calculates the consolidated EZ16 budget deficit this year stands at 6.3% and should be 4.6% next year, flattered by comparison with Japan's (9.6% and 8.9%) and the US (11.3% and 8.9%). The British are not so jolly, probably something to do with shrinking house prices and desperately low mortgage approvals, as well as losing out on their bid to host the World Cup in 2018.
China's Politburo announced a change from loose to prudent monetary policy and Brazil's Central bank increased reserve requirements. Banco Santander opened a branch in Rio de Janeiro's Favela do Alemão, the one where police and soldiers seized 40 tons of marijuana while battling to wrest control from the druglords.

Underlying Themes

Balancing the books with very large numbers requires an Archimedes-like grasp of The Sand Reckoner. When one trillion (10 to the power of 12) is bandied about just like that, how soon will we hit one centillion (10 to the power of three hundred and three)? The Madoff Ponzi scheme is estimated at $65 billion; the Fed's Quantative Easing $600 billion; emergency bank lending it provided another $3,300 billion, a lot of it to European institutions infuriating some. This year's estimated US budget deficit $14,623 billion; total public debt outstanding $13.56 trillion or 94% of GDP which is $14.4 trillion - State and private debt on top of that. When the average US private sector wage is $50,000 per annum and federal ones $79,000 plus $31,000 in benefits, how many years and at what tax rate will it take to get in shape?

What to watch for next week

From Sunday Islamic New Year holidays start in many Asian countries as EU27 finance ministers meet in Brussels, UK November New Car Registrations and EZ16 December Sentix Investor Confidence the only figures. Tuesday Japan October Leading and Coincident Indices, UK Industrial Production, German Factory Orders, US Consumer Credit and the Bank of Canada decides on rates (expected unchanged at 1.00%). Wednesday Immaculate Conception holidays for some, Japan October Trade Balance, Machine Orders, November Money Supply, Bankruptcies, Economy Watchers' Survey, German October Trade Balance and Industrial Production. Thursday Japan final Q3 GDP, November Machine Tool Orders, UK October Trade Balance, the Bank of England is expected to keep rates at 0.50% plus US October Wholesale Inventories. Friday Japan November Domestic CGPI, Consumer Confidence, UK PPI, US Import Price Index, Monthly Budget Statement, October Trade Balance and December University of Michigan Confidence Survey. Sunday 12thparliamentary elections in Kosovo.

Positioning and Technical Analysis

The problems have not been fixed and have not gone away. The only thing the authorities can think of doing is lending the indebted yet more money; if they couldn't manage repayments in the first palce, how will they cope with the extra load? Too bad the inclination is to shoot the messenger but what is needed now is careful planning to reorganise finances, prioritise and pay down debt.