Markets Live chat transcript for the chat ending at 16:05 on 3 Feb 2012. Participants in this chat were: Joseph Cotterill, FT Cardiff Garcia
JC
Hello there
JC
Aaargh slow ML start-up. Sorry about that
CG
Good morning
JC
And today, of all days
CG
Exactly
JC
America, healing
CG
still, we’re fired up
CG
Dow Jones
12,843.27 +137.86 (1.09%)
12,843.27 +137.86 (1.09%)
S&P 500
1,339.95 +14.41 (1.09%)
Nasdaq
2,894.03 +34.35 (1.20%)
CG
lots of confusion around today’s report though
JC
Yeah. Raring to go on this HUGE payrolls number
JC
Which Cardiff has spent last hour picking apart
CG
and nobody can spot the cloud in the silver lining better than we can… err
CG
but this report
CG
really does look good
CG
even better than a lot of people realised
CG
so look, sustainability always an issue, but if anything remotely like this continues
JC
CG
heh, yep
JC
(Very under-used emoticon lately)
CG
i don’t believe I’ve ever seen it
CG
and btw
CG
ISM services just beat as well
CG
though I have seen the details yet: 56.8
CG
consensus in the 53-54 range
CG
anyways, let’s pick apart the report a bit
JC
Sure
CG
first a couple of necessary methodological points. there were annual benchmark revisions to the payroll numbers, which showed
JC
(10yr up 11bps, EURUSD just below $1.31, btw)
CG
that we finished last year with about 266 more payrolls than we thought. not a huge number, but not bad either. also
JC
1.95m jobs added in last two years, is that true?
JC
Saw that stat via NYT’s David Leonhardt
CG
big revision to the november payrolls: 100k to 157k
JC
We should really have a Barack Obama emoticon on here…
CG
yep, and he’s up on Intrade btw
CG
up to something like 56% chance of reelection, though Intrade is meh
CG
but on the employment reportt
CG
for the household survey, you have to look at Table C, which includes the revisions to the population estimates
CG
and after the adjustment, the numbers are amazing
CG
employment up 631,000, unemployment down 381,000
CG
and via Wolfers
CG
here’s what the last six months now look like
CG
Aug +304k, Sep +353k, Oct +190k, Nov +317k, Dec +176k, Jan +675k
CG
And U6 also way down, obviously
CG
from 16.4% to 15.1%
CG
And payrolls growth spread across everything in the private sector
CG
Now
CG
to the inevitable caveats
CG
the obvious unknown is what effect something ike this has on policy
CG
and it’s reasonable to wonder if QE3 is now a goner
CG
i’d say not necessarily
JC
From the dollar reax in last few hours, I’d say… maybe
CG
Fed wasn’t going to address this until the spring, so we’ll have a better sense then if this has kept up
CG
yeah, it’s a real possibility, but there’s time
JC
Haven’t looked at Fed funds futures, admittedly
CG
for things to change
CG
but
CG
more pressingly, at the end of this month the payroll tax cut and unemployment benefits expire
CG
sorry, payroll tax cut extension and longer unemployment beenfits, to be precise
CG
and
CG
it’s uncleear
CG
how this will alter the dynamics of getting them extended through the end of 2012
CG
(morning AR and OH)
JC
Well
JC
If you’re a Republican
JC
Don’t play ball, if Obama reelex balance has changed this much
JC
(Sorry, being cynical.)
CG
that’s okay
CG
they weren’t gonna make it easy anyways, but now there’s the argument
CG
that it’s less urgent, less necessary, etc.. so another contractionary fiscal outcome
CG
etc
CG
but
CG
here’s one more spot from RBC, usually among the most bearish
CG
n terms of the internals of the report, everything you would want to be up was up. The gains in private sector employment were fairly broad based, as evidenced by the increase in the diffusion index to 64.1 from 62.4 (and the highest since April). As we highlighted after the previous employment report, it was encouraging to see average weekly earnings post a solid rise and indeed the trend continues. The year-on-year pace has continued to rise and now stands at 2.7% from 2.5%. With the consumer re-building savings and paring back credit card usage over recent weeks, the rise in earnings is quite encouraging since it provides the consumer with an organic means to drive spending.
CG
but
CG
That being said, the reality is if you really want to move the needle from a GDP growth perspective, we need to see this sort of job growth every month over the balance of the year. A few months of such gains is not enough. Witness February through April 2011 when we had a 3 month string of +250k prints and GDP in the first half averaged less than 1%.
JC
Fair enough
JC
Meanwhile, in theory corner…
CG
So keep an eye out, yet again, for seasonality stuff. Okay, I’m done
CG
Theory corner?
JC
Tyler Cowen’s just posted on the NFPs
JC
The “big loser” here?: Old Keynesianism. You really can get a recovery when the real shocks are moderately positive. You will note, as we have been told many many times by many many sources, fiscal and monetary policy have not been extremely pro-active in recent times; in fact the stimulus has been trickling to a close. The big winners, apart from the American public?: real business cycle theory. It is part of any cyclical explanation, whether one likes it or not.
Another big loser is those liquidity trap theories which tell us that positive real shocks are bad for the economy because the AD curve has a perverse slope, etc., and that negative shocks might help spur recovery. That theory is looking very weak, again. I consider it the weakest economic theory that has any currency in the serious economics blogosphere.
JC
Discuss, as they say.
JC
Amazed, really, how muted the initial market reax seemed to be.
JC
I mean, three-year low in unemployment rate
CG
yep, thought for sure we were headed for rally monkey day, but
JC
RTRS-ISM NON-MANUFACTURING EMPLOYMENT INDEX AT HIGHEST SINCE FEB 2006
JC
And that, too.
CG
as for Cowen’s points, this sort of thing always risks becoming circular
CG
quick aside
CG
Mr Berlusconi said he resigned last November because he had been attacked “by an obsessive campaign by the national and foreign media that blamed me personally and the government for the high spread of Italian state bonds and the crisis on the stock market”.
JC
Oh yeah – exclusive FT interview
CG
spotted by Bryce, to which JC takes a bow for his role as “foreign media”
JC
An animated Mr Berlusconi insisted said he was “still young” at 75, showing a bruise he said came from playing ice hockey with Russia’s Vladimir Putin
JC
There’s a prize if you can guess whether or not the pic is really a waxwork.
3:31PM
JC
(There isn’t really a prize.)
JC
Righty-o
JC
Speaking of cautious bullish moves
JC
There’s a nice bit in Rabobank’s Rate Directions note today
CG
bah, froze up on me, had to refresh
CG
those guys are a sharp-eyed bunch
JC
Noting that loads of their clients (in Europe) are sitting out
JC
And, like Rabo themselves, are wary of eurozone moves in long run
JC
Ergo…
JC
Given this apparent agreement, there is a very real chance the current “risk on” rally will be perpetuated should this seemingly sizeable bearish investor base begin to capitulate. In essence, we seem to have turned the clock back to 2006/2007 when the opportunity cost of sitting out the appreciation of almost all asset classes remained too great even though the sub-prime issue was already moving toward the centre of the market radar. The then chief executive of Citigroup summed this up by noting in July 2007 that “As long as the music is playing, you’ve got to get up and dance”. The same month Bear Stearns announced that the assets in two of its funds were effectively worthless.
JC
Depends on a periphery=subprime in ’07 analogy
JC
Whereas, arguably, the cenbank response is early ’09.
JC
But still, we all know how that rally ended.
3:36PM
CG
man, chuck prince
CG
will never live down that line
JC
Actual title of SocGen’s fixed income weekly today, btw:
Dance as long as the music lasts
Dance as long as the music lasts
JC
CG
still, understandable that rabo worried about this. any rally driven purely by “the world isn’t ending after all” sentiment
CG
should probably make you sweat a little
CG
line chopped. meant to say that any rally driven by “world not ending after all” sentiment should make you sweat
CG
afternoon CSS, ciao curious
JC
We’re drifting on to Europe in any case
JC
So had better note
JC
The habitual Greece rumours du jour
CG
yep, especially now that Lorcan’s in the house
JC
Well, the one big rumour
JC
Prime Minister Lucas Papademos is preparing for a make or break meeting with Greek political leaders and is said to be considering resigning if the three parties in his coalition government cannot agree on the set of reforms Greece should adopt so it can qualify for more loans.
JC
From Kathmerini
JC
Deja vu or what
CG
jaysus
CG
here’s the source of tension
CG
One of the main issues on which the party leaders are finding it difficult to agree is the private sector wage reductions that are being demanded by the troika of the European Commission, European Central Bank and International Monetary Fund.
JC
Overall figure here is further wage cuts of 20-25 per cent, IIRC
JC
Cuts to minimum wage, etc
JC
Not an easy sell
JC
Also we got more confirmation today (via Reuters) that bailout bill going up by €15bn, to €145bn
JC
Because of bank recaps
JC
Greek bank stocks taken a huge knock today, after an equally huge run-up in recent weeks
JC
Because the bank recap is supposed to be in non-voting shares
JC
(Have I mentioned that before on ML? Must have)
JC
Frankly if the Troika are picking up an ever greater tab for this, I wonder about that
JC
And the deadline for PSI ticks closer…
JC
But gosh, that’s plenty of Greece already.
CG
stocks creeping back up in the US now
CG
Dow Jones
12,847.55 +142.14 (1.12%)
12,847.55 +142.14 (1.12%)
S&P 500
1,342.00 +16.46 (1.24%)
Nasdaq
2,900.05 +40.37 (1.41%)
CG
given the standards set by last year, I suppose we have to wait for better before unleashing the rally monkey. but you’re right, somewhat surprised the reaction wasn’t stronger
JC
Though even so, the volatility macaque is noticeably absent.
CG
exactly, away for months now
CG
Anyways
3:51PM
JC
Jarvis, on that…
JC
Interesting to note huge bump in manufacturing jobs in NFPs
JC
OK – Cardiff’s being kicked out of the session it seems
JC
So it’s just me to close out the last few mins
JC
…mostly to note the lack of corp news
CG
Sorry everyone, tech malfunction again, frozen out
CG
Sorry everyone, tech malfunction, frozen out again
JC
Heh, some UK macro comment’s just dropped from Philip Rush of Nomura
JC
And it is …(drumroll)… bullish
JC
- Since the sovereign debt crisis crushed activity in October, the data have stabilised and are starting to indicate growth again. The economy appears to be inching back into a new phase of weak expansion.
- With cyclical momentum supportive at the start of the year, GDP growth now looks likely to be positive in Q1. If so, the UK would have narrowly avoided a technical recession, although the seas would remain choppy.
- Momentum has extended through to the labour market, where growth in the labour force is being accommodated by people finding work. This suggests growth may be close to potential, despite its weakness
- Since the sovereign debt crisis crushed activity in October, the data have stabilised and are starting to indicate growth again. The economy appears to be inching back into a new phase of weak expansion.
- With cyclical momentum supportive at the start of the year, GDP growth now looks likely to be positive in Q1. If so, the UK would have narrowly avoided a technical recession, although the seas would remain choppy.
- Momentum has extended through to the labour market, where growth in the labour force is being accommodated by people finding work. This suggests growth may be close to potential, despite its weakness
JC
Some decent services PMI data earlier
CG
(Capt B Mannering, surely he’ll have some kind of speech today, will probably try to be understated.)
JC
Cyclical, wonderful cyclical
JC
Although we are not out of the woods yet, we continue to expect cyclical growth momentum to take firmer hold in H2, with front-loading occurring in the UK‟s case owing to the London Olympics. Abstracting from the beneficial boost from this though, we doubt underlying growth rates will be impressive. Rather, we believe growth will remain weak because the UK‟s potential productive growth is severely impaired. That will be supportive of inflation, especially given the MPC‟s reluctance to pay heed to it. Nonetheless, the economy‟s growth
performance should have improved significantly by year-end, in our view.
performance should have improved significantly by year-end, in our view.
CG
(Rain, well, we have to see if it keeps up. Probably won’t make any changes on the back of two good jobs reports. Let’s see if the trend holds first.)
JC
There you are, green shoots even in the UK
CG
wherein green shoots is “we believe growth will remain weak, but”…
CG
new normal, etc…
JC
Yeah. We need a car-crash to balance out this ML session before it ends though.
JC
*FALCONE’S HARBINGER FUND LOST 47% IN 2011 ON LIGHTSQUARED BET
JC
There you go.
CG
CG
Okay then, shall we call it?
CG
Rabble, thanks for playing again, and sorry about recurring tech issues
JC
Cheers Capt B
JC
Au revoir rabble, thanks for joining
JC
And see you next week!
CG
Have a great weekend all, bye!