Friday, September 7, 2012

Markets waver after a disappointing jobs report

Dow was up 14, advancers over decliners 2-1 & NAZ inched up pocket change.  The Financial Index gained 2 to go over 210.  The MLP index was up a fraction in the 396s & the REIT index rose a fraction to above 270, a new 4 year high.  Junk bond funds slid lower & Treasuries lost much of their early gains, finishing slightly higher.  Oil also fell back from the AM prices but gold continued surging on bets that stimulus is coming & it will make matter worse.

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CLV12.NYM...Crude Oil Oct 12...96.42 ...Up 0.89 (0.9%)

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Big Ben's case for further monetary easing was bolstered by figures showing widespread weakness in the labor market.  He may push for new bond purchases or an extension of the Federal Reserve pledge to hold the main interest rate near zero thru at least late 2014.  Today’s unemployment report also showed that the participation rate, which indicates the share of working-age people in the labor force, fell to the lowest in 31 years.  The Federal Reserve’ forecasts call for unemployment of 5.2%- 6% in the long run.  At next week’s meeting, the policy makers plan to update their estimates for unemployment & other economic data.  At their last meeting a month ago, many members of the FOMC said additional stimulus would be warranted unless there was a “substantial and sustainable strengthening” in the economy.

Labor Market Strengthens Bernanke’s Case for More Easing

The biggest decline in factory jobs in 2 years reported today by the Labor Dept adds to signs that manufacturing is bearing the brunt of the slowdown in global growth.  Factory payrolls declined 15K workers last month, according to figures issued today.  The workweek shrank & the share of industries hiring plunged to the lowest level in almost 3 years.  Combined with earlier data showing less demand for capital equipment & growing pessimism among purchasing managers, today’s figures show manufacturing, which helped lead the US out of the worst recession in the post-World War II era, is pulling back.  Companies such as Intel (INTC), a Dow stock, are among those cutting forecasts as business investment cools & economies from Europe to Asia slow.  While the drop in factory hiring last month was magnified by changes in the annual shutdowns at auto plants, the decline extended beyond a single industry.  Producers of wood products, fabricated metals, electrical equipment & semiconductors also reduced headcounts in Aug.

Jobs Data Show U.S. Factories Bearing Brunt of Slowdown

  • <p>               German Chancellor Angela Merkel speaks at a press conference at the federal chancellery in Vienna, Austria, Friday, Sept. 7, 2012. In background Austria's coat of arms.  (AP Photo/Ronald Zak)
Photo:   Yahoo

Angela Merkel, who is becoming THE financial leader in Europe, says the fate of the € depends more on the need for bold political decisions by members of the euro zone than it does on the ECB's new powers to bolster financially struggling countries.  She spoke after the ECB decided on a broad policy of buying the bonds of economically troubled European govs to ease their borrowing costs.  The head of Germany's central bank was opposed to the ECB move, but Merkel was open to the plan as long as the nations benefiting agreed to strict economic reforms - a condition the ECB adopted.  Merkel says the ECB made it clear "the future of the € will be decided fundamentally by political action, and that conditionality is a very important point."  She recognized that bailout money has its limits on solving euro debt problems. 

Merkel: Euro fate tied to political will, not ECB AP

Markets have a lot to digest over the weekend.  The bulls are praying Big Ben will bail them out once again.  But even if he does, it's not clear how much good it will do.  The Federal Reserve has already done a lot, followed by an economy that is slipping & sliding into a recession.  But today's jobs report was so bad, he may feel compelled to do something.  The big question is, What?  Euro remains a mystery.  The new bailout program requires a country to request funds, which can get tricky.  But the markets like the idea with the € is at near term highs & risky gov bonds have been rising.  Dow continues near 4 years highs, above 13K.

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