Leave it to the non farm payroll to cause a little excitement. Conventional wisdom had a modest reduction in the NFP and the total unemployment would remain about unchanged. This would be serve as confirmation to the bulls that the recovery is progressing, and the equities market would rally, the rates on Treasury notes and bills would increase, and the dollar weaken, continuing it's the inverse correlation with the stocks.
Well, the government gave us a surprise with the non farm payroll down 11k, far less that the 119k expected, while the unemployment was likewise a shocker, a reduction in the rate down to 10%. Coming the day after the well publicized Washington job summit, those of us who are a little cynical of the government's objectivity are not surprised by this report. After all the NFP allows for an estimate of the changes in small business activity. However, Washington policies have not been designed to assist small business. As was reported by the WSJ in Market Watch this mornings:
Consider that as Citigroup Inc. and General Motors Co. each received $50 billion in direct aid from the government.
Small businesses have received less than $400 million in new loans under the stimulus bill, as well as a handful of tax breaks and a program that buys up to $15 billion in securities tied to small business loans."
Small business is normally the engine for job creation in a recovery. Considering Washington's neglect of the main street small business and, a future that holds more costly regulations, higher taxes, and unknown burdens in the mammoth "health reform" bill, the assumption that small business may be on the cusp of expansion is pure balderdash. Many of the increased employment hires in this period were temporary workers.
The pundits got most of the reaction to the report correct right. Stocks were higher for a while but have since sold off , and the rates on the treasuries have increased, but the dollar has strengthened. After spending some time trading above the 1.50 handle the Euro has turned south, and is currently trading under 1.4900. Perhaps yesterday's strength convinced a lot of traders that the bull run in the Euro was real. Open interest at the CME futures market did increase over 9,000 contracts. No doubt some of these traders have buyers remorse and are bailing out of the market today. Interest rates in the 3 year notes has moved up today as well as the rates on the 10 and 30 year paper which will be auctioned next week, but we doubt that higher rates on the back end of the yield curve account for much of the strength in today's dollar.
They say the majority is never right for very long, and the majority has probably been long. Maybe today's activity is stop loss selling as we take out some moving averages, combined with a little end of the week account house cleaning. The longer term trend still looks higher but today's action is testing our resolve and hopefully merely postponing our pay day.
Disclosure: no stock positions