Market Commentary

The all inclusive unemployment data is released today at 8:30.
March 05, 2010

The all inclusive unemployment data is released today at 8:30.  Conspiracy theories are abounding suggesting the White House already knows the data, downplaying expectations as the statistics will be miserable because of the severe winter weather.

Personally I don’t think this is the case as Chief Economic Advisor Larry Summers—the White House official who made the pronouncement--would not have possession of this information at the time of his Monday statement. 

Some might accuse me of being naive, however it is my understanding it is against many federal regulations to pre warn of any data releases.  It is common knowledge the reference period—or the period which the survey was taken—the Northeast was in the midst of twin blizzards.  I contend Summers was only making a common sense observation.

However I do ask what are the odds the data does surprise on the upside?  As widely noted, job losses have slowed considerably.  During the three months ending January nonfarm payrolls losses averaged 35K versus 220,000 the previous three months and 687K in the three months before that.  Available peripheral indicators for February were mixed but on balance appear too support the idea of ongoing improvement.

For example, the underlying trend in both ISM gauges, continuing strength in temporary hiring and the relative strength of various private employment surveys all suggest a number better than the consensus view of a decline of 63,000 jobs.  On the negative side there was the severe winter weather that I believe distorted weekly initial jobless claims.

As stated above the data is released at 8:30 and consensus is expecting nonfarm payrolls to decline by 63,000.  The headline rate is expected to rise by 0.1% to 9.8% and average weekly hours are expected to be flat.

How will the markets respond and what will happen to monetary outlook if the data does exceed views given such low expectations? 

I contend the two greatest risks facing the economy are Washington and interest rate risk.  The financial system is awash in cash.

 As per recent Federal Reserve data, excess bank reserves are now over $1.3 trillion versus the historical average of $1-$2 billion.  As per Bloomberg the S & P 500 companies hold a record $2.18 trillion in cash.  Ex financials, utilities, and transports there is a record $820.3 billion in cash, up 27% from a year earlier.

What happens to inflationary expectations if monetary velocity suddenly accelerates, perhaps the result of unexpected hiring?

Outlandish thought?  The outlandish has become the norm.

Last night the foreign markets were up. London was up 0.58%, Paris up 0.79% and Frankfurt up 0.54%.  Japan was up 2.20% and Hang Sang up 1.03%.

The Dow should open moderately higher on speculation that job losses will persuade the Fed to keep interest rate low for a prolonged period and from optimism that Greece can repay its dept but this could change radically given the significance of the upcoming data.