Risk Off, Hold On To Your Seats, NFP Really BIG Miss, QE3 On The Way?

April 6th, 2012
in Gary's blogging, Special Post

Earlier this morning Barry Ritholtz wrote this article and his concerns are everyone’s now.


Good Friday NFP Day

“As an investor, I am keying in on two factors: What Does this mean for the possibility of Recession? And how does the Federal Reserve react to better or worse numbers?

While most of the Street has already moved past a possibility of any economic contraction, a few laggards (notably, ECRI and John Hussman) still are maintaining their recession vigils. A fourth month of 200k+ job creation makes those positions much less tenable; however, a major disappointment puts the economic bear back in play.“

When the numbers were announced the reaction was swift with a market breakout. First DailyFX reported:


There's the "hallowed" labor market weakness Bernanke needs to start kicking the can about QE3.


Follow up:

The USD was up a bit befor the announcement at 80.32 and promptly waterfalled to 79.95, recovering shortly after to 80.10. Suspect this is what Monday morning will look like. If you short the premarket be carful not to get caught up in short covering right after the opening.

The SP500 futures reaction was immediate and overwhelming with a 1% fall. I suspect the Monday's market will have had time to digest this and will be muted in comparison to today's reaction.

The SP500 futures and USD fell like a rock, Risk Off! This is the biggest NFP miss since February 2009. The 500 closed yesterday at 1398 and today's futures briefly climbed to 1394 before falling to 1372.


Non-Farm Payrolls +120K, Unemployment Rate 8.2% – Mixed to Bad Outcome Weakens Dollar

The United States gained only 120K non-farm jobs in March. Early expectations stood on a gain of around 207K. This is a very big miss, below the worst official estimates.

The unemployment rate dropped to 8.2%, due to a drop in the participation rate. Expectations were for no change from last month’s initial report of 8.3%. The “real unemployment rate” dropped from 14.9% to 14.5%. Confused? So is the market, which is gradually leaning towards the bad NFP and sending the dollar a bit lower.

EUR/USD reacts with a strong rise from 1.3050 to 1.31. USD/JPY breaks lower. In the meantime, the big disappointment in the NFP wins over the small drop in the unemployment rate. Does the market see QE3 coming at the end of April?“


“S&P futures -1% after the disappointing NFP print. Treasury prices fly higher, the price on the long bond rising about a full point and a half!

Mar. Nonfarm Payrolls: +120K vs. consensus of +201K, prior 227K. Unemployment 8.2% vs 8.3% expected. Average workweek 34.5 in-line with expectations. Average hourly earnings 0.2% in-line with expectations.

The U.S. economy tacked on 120,000 jobs last month, the smallest gain since October 2011, and a smaller increase than the 203,000 economists expected. The unemployment rate fell 0.1-percentage point to 8.2%, the lowest since January 2009. U.S. stock-index futures fell sharply on the report, with Dow futures down 86 points in choppy trading.”


NFP Big Miss: 120K, Expectations 205K, Unemployment 8.2%

“March NFP big miss at just 120K. Unemployment rate declines from 8.3% to 8.2%. Futures slide, for at least a few minutes before the NEW QE TM rumor starts spreading.

And as always, as we predicted when Goldman hiked its NFP forecast yesterday from 175K to 200K saying "if Goldman's recent predictive track record is any indication, tomorrow's NFP will be a disaster", Goldie once again skewers everyone.

The unemployment rate drops to 8.2% for one simple reason: the number of people not in the labor force is back to all time highs: 87,897,000.”


U.S. Employment Rises Less Than Expected In March

“U.S. employment saw continued growth in the month of March, according to a report released by the Labor Department on Friday, although the pace of job growth came in well below economist estimates. The report showed that non-farm payroll employment increased by 120,000 jobs in March following an upwardly revised increase of 240,000 jobs in February.

Economists had expected the addition of about 201,000 jobs compared to the increase of 227,000 jobs that had been reported for the previous month. Despite the weaker than expected job growth, the unemployment rate unexpectedly edged down to 8.2 percent in March from 8.3 percent in 8.2 percent in February.”


(MarketWatch) -- “The U.S. dollar turned sharply lower against other major currencies on Friday after the U.S. government reported that nonfarm payrolls rose by only 120,000 in March, well below market expectations. The U.S. dollar index DXY -0.24% , which tracks the performance of the greenback against a basket of other major currencies, fell to 79.746 compared with 80.084 before the data.

The dollar dropped 1.1% against the Japanese currency to trade at 81.35 yen. The euro gained 0.3% to $1.3102 and the British pound added 0.3% to $1.5873.”


U.S. TREASURY: Treasury 10-year note rises 1 point, yields 2.07% in New York.

Read the full BLS report here: http://t.co/DvkDW8PK $$ $MACRO $FED

$USDOLLAR takes out congestion lows. Looks like traders are playing this a little bit more "bad data -> bad" than I might've predicted.”


Treasury Yields Drop Most In 5 Months As Market Reacts, Equity Futures Slide

“Risk-Off. Treasury yields dropped around 12bps across the curve from pre-NFP as the 10Y yield drops the most in 5 months. Equity futures are down the most in a month (20pts off pre-NFP levels) and testing lows as they catch up to credit weakness.

IG credit is testing 100bps for the first time in over 2 months and HY credit is back over 600bps - its widest in 3 months. Gold has popped $10 or so to over $1640 and it appears we have a new FX regime with USD weakness implying market weakness as JPY strength (on repatriation and carry unwinds back to one-month highs) is the most impressive (and AUD weakness for same reason).

EURUSD is leaking higher as is swissy, as the EUR-USD swap spread model converges on EURUSD's fair-value. Of course markets are thin, but ES (the S&P 500 e-mini futures) is trading relatively actively and testing lows once again as they close - not pretty at all as ES ends the week with the heaviest 3-day loss in four months (perhaps notably ending at 2011's May high print level).”

Here are the numbers in graphic form from DailyFX.

Other comments from around the Internet.

@financial times:_____

US jobs growth slows in March

By Shannon Bond in New York

“US companies pulled back on hiring in March, adding the fewest new workers in five months, but the unemployment rate unexpectedly ticked down to 8.2 per cent as more Americans left the labour force.

The 120,000 new jobs created last month were well below economists’ forecasts of 205,000, following three consecutive months of employment growth of more than 200,000.

The slowdown in job creation will be a blow to Barack Obama, who is counting on a steadily improving economy to bolster his case for re-election in November.

The unexpectedly small gain will probably add support to Federal Reserve chairman Ben Bernanke’s view that the strong employment growth seen earlier this year may not be sustained unless economic expansion quickens.

“One number is not going to see the [Federal Reserve] make any knee jerk reactions, but it will serve as a reminder to the hawks that the US is not fully up and running again,” said David Semmens, senior US economist at Standard Chartered.”

Bloomberg basically covered what Bernanke had to say prior to today's reports.


Employers Added 120,000 Jobs in March, Fewest in Five Months

“Employers in the U.S. added fewer jobs than forecast in March, underscoring Federal Reserve Chairman Ben S. Bernanke’s concern that recent gains may not be sustained without a pickup in growth.

The 120,000 increase in payrolls, the fewest in five months, followed a revised 240,000 gain in February that was bigger than first estimated, Labor Department figures showed today in Washington. The March increase was less than the most pessimistic forecast in a Bloomberg News survey in which the median estimate called for a 205,000 rise. Unemployment fell to 8.2 percent, the lowest since January 2009, from 8.3 percent.”

It is hard to believe these reports have been kept secret from the Obama Administration as damning as they are. Apparently Bernanke was also in the dark – hard to believe that didn't at least have a sneak peak of some sort.

I should have listened to my own self and gone short like I have been threatening too for the past 2 weeks, but who could have predicted this market correction. There still might be time in the premarket to jump in on Monday, but one needs to first figure out if the market will rebound after the opening. I see where spot gold climbed 0.56% to $1640.33/ounce, Monday morning will be interesting for sure.

All for today, see everyone Monday.

Written by Gary

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