U.S. Markets Summary: Still Cloudy

The U.S. Markets ends the week on an upbeat tone, with the S&P’s 500 gaining 1,4%, making its longest rally of the year. Some more less-worse-than-expected numbers from the labor market offset yesterdays “surprisingly” bad housing numbers. It’s still difficult to see clear signs of a real recovery. But heck, you can’t see anything in this weather!

“No doubt there will be legions of economists sifting through the data to gauge the weather effects and conclude that excluding the storms, there would have been oodles of jobs created last month.”

David Rosenberg

Stocks and commodities climbed while Treasuries retreated, Friday, and the dollar erased gains after a smaller-than-estimated decrease in U.S. jobs added further optimism about the global economic recovery is accelerating.

The Standard & Poor’s 500 Index climbed 1.4 percent for a sixth straight days of advance, its longest rally since the start of the year.

Oil and copper surged, while Treasury two-year note yields climbed six basis points to a two-week high of 0.9 percent.

The Dollar Index slipped 0.2 percent after gaining as much as 0.4 percent.

Global stocks extended their advance after a U.S. government report showed the country’s unemployment rate held at 9.7 percent in February as the nation lost 36,000 jobs.

Economists on average had forecast a decrease of 68,000 jobs and a gain in the unemployment rate to 9.8 percent, according to a Bloomberg survey.

“Today’s employment report was a real win-win. If it was considerably negative, it would be dismissed as snow-induced and a snapback in March was all but assured. On the other hand, if the report was better than expected, and it was, then it demonstrates a strong jobs market in spite of weather related factors,” Dan Greenhaus, chief economic strategist at Miller Tabak & Co, writes in a note to clients.

Well, David Rosenberg. chief economist at Gluskin Sheff has a slightly different view:

Don’t Let The Noise Disturb You

“The markets are reacting to today’s employment report as if it were new news. Yet two-days ago we received the Fed’s Beige Book, which had already put us on notice that “the pace of layoffs slowed in most Districts, but hiring plans still remained generally soft … Wage pressures were minimal.” That is exactly what the data portrayed — firings are dissipating, yet companies remain very cautious over the outlook for new hires, and wage growth is slowing down,” Rosenberg writes in his not to clients.

“No doubt there will be legions of economists sifting through the data to gauge the weather effects and conclude that excluding the storms, there would have been oodles of jobs created last month (the only issue is whether or not the person got paid, not whether they were actually at their desk. The question the consensus really has to ask is why it was so focused on the weather and forecasting a 70,000 job decline when we know with perfect hindsight that the fabled Storm of the Century back in January 1996 only managed to result in a 19,000 decline?) The growth bulls will also undoubtedly point to fact that only 15,000 Census workers were hired and that there is still a huge pipeline of jobs here that will be counted in the coming months.”

“But all of this noise obscures the big picture of what the labour market “should” be doing in the context of all the stimulus in the system and where we are in the economic cycle. If this was a normal post-recession recovery phase, which it clearly is not, we would be seeing over 100,000 in terms of job creation. (In fact, in the eight months following a bottoming in output, employment normally rises by a million — it is down by that amount this time around.)”

“That is actually understating the situation.”

“If this was a normal monetary policy cycle, then we would be creating 150,000 jobs by now because that is what we usually get 2½ years after the FED begins to ease.”

“Better yet, what is normal after a 5.9% real GDP quarter historically (which is what we just saw in Q4)? On average, the next two months see job gains of 215,000 rather than the average 31,000 decline we just saw in the January and February reports. Never before have we seen declines two months after such a strong GDP quarter until now.”

“If one is looking for the cup-is-half-full viewpoint, there is no argument here that in absolute terms, the U.S. labour market is healing (it is relative to where we should be and what was normal in past post-recovery phases that is disturbing).”

• Factory payrolls rose (+1,000) for the second month in a row, as the ISM data had suggested would be the case.

• The employment-to-population ratio rose for the second month in a row, to 58.5% from 58.4%; ditto for the participation rate, to 64.8% from 64.7%.

• The average duration of unemployment dipped to 29.7 weeks from the record high of 30.2 weeks posted in January, and the share of the unemployed who have been looking fruitlessly for work for more than six months eased a bit, to 40.9% from 41.2%, but still the second highest number every recorded.

• The Nonfarm diffusion index improved from 44.2 to 48.0 as well. Some improvement is certainly better than none, but as a stand-alone labor market indicator, these are still astonishing data points.

On Housing Data

“Pending home sales in the U.S. sagged 7.6% MoM in January (the consensus was expecting +1%) and judging from the broad based regional decline, it is really tough to just pin this on the blustery weather. What is really scary is that this is the time when sales should be making a big up-move ahead of the expiry of all the government support from the Fed buying program of MBS to the tax credits.”

The FED Kind Off Beige

“The Fed’s Beige Book is very useful in terms of its timeliness (information taken from mid-January to February 22) and granularity to the sector level. I always make a note to check and see which industries are seeing positive and negative momentum. In the latest Beige Book (released on Wednesday, March 3) the list of positives was longer than I have seen in at least the last two years (twice as many positive sectors as there were negatives). Although, the number of Districts reporting improved economic conditions did fall to 9 from 10 in the prior report published on January 13th.”

Positive mentions

• Steel

• Natural gas

• Tech (especially semiconductors)

• Software/Information services

• Housing (entry level)

• Tourism

• Staffing firms

• Chemical manufacturing

• Rail transports

• Airlines (fares stabilizing, leisure and business demand improving)

• Heavy machinery (especially mining and agriculture equipment)

• Plastic products

• Health care services

Negative mentions

• Commercial real estate

• Banking

• Commercial aircraft

• Automotive

• Coal

• Petrochemicals

More interesting observations from David Rosenberg in latest issue of “Lunch With Dave”.

U.S. Markets Snap Shots

Standard & Poor’s 500 (RSI and On-balance Volume):

Dow Jones:




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