Market Commentary

None of the financial markets did much of anything yesterday.
December 03, 2009

None of the financial markets did much of anything yesterday.  In my view the economic reports did little to change the landscape.  Demand for mortgages appear to picking up but this might be the result of the extension/expansion of the tax credit and from the fact that rates are very alluring.

Challenger reported layoffs apace in November but down significantly from a year ago.  The private ADP Employment survey also suggested jobs declined in November albeit at the slowest rate since July 2008.

Speaking of the ADP survey, private sector jobs declined by 169,000 during November versus the consensus view of 150,000.  How will this data correlate back to tomorrow’s inclusive BLS report?

As widely noted ADP has over stated actual private sector job losses in eight of the ten months by amounts as high as 194,000.  I must write the misses have been smaller the last couple of months but a case can be made tomorrow’s decline in nonfarm payrolls might be less than the 123,000 expected.

I also ask what will be effect of seasonal factors.  The economy began shedding jobs massively around this time last year.  What would be the impact if a five digit number is released, primarily the result of seasonal variations?  Will the markets read right through it or rejoice utterly euphorically?

Incidentally consensus is expecting a 123,000 decline in nonfarm payrolls, the fewest job losses since January 2008 when 72,000 jobs were shed.

The Federal Reserve’s Beige Book was also released yesterday for the period of October through mid November. It is released two weeks before a FOMC meeting. This statistical study stated economic activity “improved modestly” and consumer spending rose in a majority of the districts.  In my view it was a more upbeat than previous ones.

In fact, Richmond Fed President stated yesterday the economy “has hit bottom” and a recovery is “solidly under way” with autos and homes no longer a drag on growth.

I ask rhetorically how quickly the Central Bank will act if growth is indeed stronger than most suggest.  Yesterday Goldman Sachs forecasted “rather strong” growth in the global economy for both 2010 and 2011 expanding by 4.4% and 4.5% respectively.

If this does occur will job creation begin at a time and a pace much earlier/quicker than expected?  As widely noted the economy has lost 7.3 million jobs since December 2007.  The vast majority—5.3 million—lost between October 2008 and July 2009.  Tomorrow’s report is expected to indicate the economy has lost jobs for 23 consecutive months.

I reiterate my long held view corporations panicked last year and fired too many people to ensure their survival. 

Against this backdrop perhaps my outlook for job creation in early 2010 is not the outlandish as it first appeared.

What will occur today?  Jobless claims and ISM Non Manufacturing Index are released.

Last night the foreign markets were up. London was up 0.12%, Paris up 0.64% and Frankfurt up 0.58%.  Japan was up 3.84% and Hang Sang up 1.19%.

The Dow should open nominally higher on the news that Bank America will repay $45 billion in TARP, a high profile acquisition in the media industry and general feeling that the economy is improving.  The 10-year is off 10/32 to yield 3.35%.