Wednesday, January 5, 2011

Finally Something Bullish: ADP December Jobs Report

I have to admit I was pleasantly surprised by the ADP jobs report today:

"Private-sector employment increased by 297,000 from November to December on a seasonallyadjusted basis, according to the latest ADP National Employment Report® released today. The estimated change of employment from October to November was revised down but only slightly,from the previously reported increase of 93,000 to an increase of 92,000."

Quick Take:

The issue here is how much of this was just $10 an hour Christmas Season hiring versus actual jobs growth:

"According to the ADP Report, employment in the service-providing sector rose by 270,000 in December, the eleventh consecutive monthly gain and the largest monthly increase in the history of the report."
Take Continued:
 
I think the reason stocks didn't soar on the news was because 270,000 of the 297,000 jobs were service sector jobs.  These tend to be lower paying jobs that you look for during the holiday season.  Manufacturing looked better too but the numbers were hardly impressive with an increase of only 23,000.
 
Nonetheless it was a solid report.  I will be looking for some nice follow through post shopping season before I call this a trend. 
 
The problem with the economy showing any sort of a pulse is the bond market.  The 10 year bond soared on the positive jobs report:
 
 
This is the box that Bernanke finds himself in.  If the economy improves then interest rates are going to soar because the bond market will start to worry about inflation.
 
Rising rates will crush any sort of housing recovery which will then destroy the banks balance sheets.  The way I see it the Fed is in a damned if they do and damned if they don't/no win situation.
 
If the economy grows then they will be under severe pressure to raise interest rates.  If the economy doesn't grow then we have a huge deflationary problem as the country sinks into a deep depression.
 
European Debt Crisis
 
This nightmare reared it's ugly head again today:
 
"Portugal paid almost twice as much to sell 500 million euros ($660 million) of six-month paper on Wednesday as it did in September, keeping the country at the sharp end of persistent market concerns about euro zone debt.


The yield rose to 3.686 percent from 2.045 percent in the previous auction. The auction produced a bid to cover ratio of 2.6, compared with 2.4 previously."

Yikes!  Ugly.

We also got this from the Swiss:

"The Swiss central bank confirmed Wednesday it has excluded Irish government debt from a list of assets considered eligible as collateral for its repo deals – operations under which it lends money against collateral."

The Bottom Line

The dollar is soaring on the strong jobs report and the European debt issues over in Europe.  Commodities dropped on the stronger dollar. 

The market is mixed as it tries to digest all of the news out of Europe and the US this morning.

I have been warning that the European debt crisis would take center stage early this year and it looks like things are heating up again over there. 

I'll be curious to see where we end up closing on the S&P after today's session.

4 comments:

getyourselfconnected said...

"I'll be curious to see where we end up closing on the S&P after today's session.

I'll be curious to see HOW FAR UP we end up closing on the S&P after today's session.

Fixed it for you, LOL!

Samsara Sojourner said...

Although I agree with you most of the time, with the reports from the last couple of weeks I'm headed partly in the market for a bit and see where this leads. I believe a lot of others will feel compelled to show up to the table. With Bond funds as they are....maybe a 90 day wonder will come to pass.

Jeff said...

LOL Get

It's 1999 all over again!

Jeff said...

Samsara

I don't blame you! This thing could run for a bit longer especially if Europe blows up.

I have a few small longs in a 401k.

I will keep my powder dry for the most part because I don't trust whats going on.