Market Commentary

As noted yesterday December stands a reasonable chance
January 08, 2010

As noted yesterday December stands a reasonable chance of being the first month in exactly two years to see an increase in nonfarm payrolls assuming no major revisions in November’s data.  In my view there are several indications from the available peripheral employment data that the underlying improvement in the labor market continued in December and consensus would suggest an outright increase in payrolls if not for the severe weather.  At this juncture consensus is suggesting no change in nonfarm payrolls but the estimates are wide ranging from a decline of 100K to an increase of 85K.

Regarding the headline rate, consensus is expected a 10% unemployment rate, unchanged from November’s level.  What are the odds there will be a “nine handle?” The total number of recipients of jobless claims across all programs, state and federal, fell by nearly twice as much between the November and December reference weeks as it had the previous month as per Bloomberg. 

As widely known the unemployment fell by 0.2% in December, thus suggesting a nine handle is indeed plausible.  The range is between 9.9% and 10.2%.

All will also scrutinize the average workweek, average hourly wage and demand for temporary help in an attempt to gauge the ongoing strength of the labor market.

To state the incredibly obvious this data could greatly impact market direction and views about monetary policy.

Briefly discussing yesterday’s market action, equities gained on an easing of concern over real estate losses and gains in retail sales.  Morgan Stanley stated yesterday commercial real estate losses will not be a major drag on the economy and losses will be considerably lower than expected.

The treasury market was essentially unchanged perhaps already fully discounting a positive nonfarm payroll number.

Last night the foreign markets were up. London was down 0.04%, Paris up 0.56% and Frankfurt up 0.22%.  Japan was up 1.09% and Hang Sang up 0.12%.

The Dow should open flat but this could change radically following the 8:30 release of the unemployment data.  The 10-year is off 7/32 to yield 3.85%.