Friday, December 07, 2012

Surprise Slowdown In Germany

Nonfarm payrolls for November came in nicely ahead of consensus estimates, but the enthusiasm among stock buyers was short-lived and the market was back at the flat line in the first hour of trading. 

Payrolls gained 146,000 last month vs. estimates for 90,000.  Also surprisingly the unemployment rate dropped to 7.7% from 7.9% last month.  I haven't parsed the figures but my guess is much of that decline is due to a continued drop in the labor force.  I haven't seen any big hiring announcements in the news, other than temporary workers for Christmas.

Asian markets were mixed to lower overnight.  After the close in Japan, a 7.3 magnitude earthquake shook the northeast.  But no major damage reports have surfaced.  The Philippines are still dealing with the cleanup efforts following a deadly typhoon this week.  China was the one Asian market to bounce +1.6% last night, after a former PBOC advisor said he expects 2013 GDP to bounce back to 8.0%.

European markets were lower before the US payrolls data came out, which helped put a bid under shares and lift markets off their lows.  Germany's Bundesbank came out with projections that 2013 GDP will slow to 0.4%.  That is a big downward revision from the 1.6% rate forecast in June.  The bank also warned of a possible recession.  A big slowdown in Germany and France would not be good for the bailout programs the ECB and IMF are trying to implement.  Germany and France are the biggest backers of said programs, and already the credit ratings of the ESM have been downgraded.

The dollar is higher and commodities are mixed.  Oil prices are roughly flat near $86.35.  Gold prices were lower earlier this morning, but have since bounced back above the $1700 level to $1705.  Copper prices are higher as well.

The 10-year yield got a little lift from the jobs report and is higher to 1.62%.  The VIX is a little lower again near the 16.25 level. 

Trading comment: Yesterday I commented that the sideways consolidation in the S&P 500 Index put it in better shape for another stab at breaking above its 50-day average.  This morning's early pop on the NFP news accomplished that feat, but the ensuing fade has put the senior index back below its key overhead moving average.  We are in a real push and pull market, but we still have some time before the close today.  The 50-day average resides around SPX 1417, so we are only about 5 points away right now.  If we don't have too weak of a close this afternoon, I do think we could see some further upside next week.  Boehner's comments on the fiscal cliff certainly did not inspire confidence this morning, so I'm not sure I want to get too bullish even if we do see an upside breakout.  But for those looking for higher prices to do any selling or rebalancing it is worth paying attention to the recent price action.


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