Doh! If it wasn’t for the atrociously weak payroll numbers, the Fed would have pulled back on QE by year-end. Phew, that was close.
Well, that’s the spiel following the release of the Fed minutes. Actually, it’s important to note there was a double 'doh' moment with the minutes, apparently – which were released, by pure accident, to a bunch of Congressmen, some unions and some select investment banks. Just by pure accident – investigation (ahahaha) pending.
Anyway, luckily for us, the labour market nearly collapsed, creating only, what, 80,000 jobs or something after about 270,000 – 350,000 jobs over two months just doesn’t cut it, it seems. The labour market had its chance – and blew it.
Now the Fed are just going have to keep monetising Obama's deficits. They don’t want to, they have to. Oh, wait – they would have done that anyways! Yes – recall that Janet Yellen said that even if the economic targets are met, they may not stop. They won’t stop till they get enough… “Keep on with the force don't stop... Don't stop till you get enough!”
I don’t doubt that’s what plays in the background at meetings between Obama, his staff – Yellen, William Dudley and Ben Bernanke – before they break out into some krumping. Lunatics in my opinion, the lot of them – lunatics hiding behind a thin veneer of civility and stoicism. A well trodden path – Hannibal Lecter was very polite.
Anyway – the minutes. What got markets excited was the part stating that “Many participants, including some of those who were focused on the increasing risks, expressed the view that continued solid improvement in the outlook for the labor market could prompt the Committee to slow the pace of purchases beginning at some point over the next several meetings”.
This isn’t new. The stated Fed position has always been that if the labour market improved significantly, QE would be reined in. Recent rhetoric from Bernanke is that he’s not happy.
“Significant improvement" is still a very vague target. The latest jobs print won’t be regarded as solid though – according to everyone. This focus on just one month of data is interesting, as it disregards the all the previous strong gains. I guess we would only be talking very small changes even if Bernanke was happy. So to the extent that the Fed does curtail QE (not a given), we can expect a reduction from $85 billion per month to maybe $65 or $70 billion. That’s still more than sufficient to monetise the deficit. So there is no real change.
US Treasuries had a modest reaction, with yields rising only 5 bps to 1.807 per cent. The 5-year is then at 0.736 per cent and the 2-year at 0.226 per cent. Modest of course, because after the recent labour figures people don’t expect a near-term change to QE over the next few meetings.
On a not entirely unrelated issue, Obama released his new budget blueprint overnight. He’s miffed that the GOP wants to rein in deficit spending. "Pah!" he said. "Pah!"
“For years, the debate in this town has raged between reducing our deficits at all costs and making the investments necessary to grow our economy…This budget answers that argument, because we can do both. We can grow our economy, and shrink our deficits."
“Keep on with the force don't stop... Don't stop till you get enough!”
He’s proposing yet another grand bargain, one that is similar to what he proposed last year – and that the GOP rejected. So I won’t bother with the details and it apparently has little chance of becoming law anyway.
For stocks on Wall Street, we’re talkin’ new highs. The Dow closed at yet another record, and I think even the S&P made a new record. At the close, the Dow was up almost 129 points (14,802), the S&P was 1.2 per cent higher (1587) and the Nasdaq was 1.8 per cent higher (3297).
No news really – papers all suggest it’s a combination of the Bank of Japan’s ‘monetary bazooka’, those Chinese import numbers out yesterday (which no one believes, ‘cause they are at odds with their preconceived notion of Chinese economic collapse), and momentum. Whatever the case, there were some strong gains across Europe as well – the Dax up 2.3 per cent, the CaC up about 2 per cent and the FTSE 1.2 per cent higher.
Oddly however, commodities didn’t share in that, with gold off almost $30 to $1557, silver falling hard and copper off 0.7 per cent. Crude itself was up smalls – 0.4 per cent to $94.6.
In forex land there wasn’t much of note – having hit a high of $US1.3119, the euro is down to 1.3069 which is little changed from yesterday afternoon. The Australian dollar is up about 30 pips to 1.054, while the yen is at 99.86. No change really for the British pound either at 1.5327.
For our market today, the SPI suggests gains of 0.8 per cent. Outside of that we get Australian employment figures. They will be interesting after a 70,000 rise last time. Chances are we’ll see come weakness today, but the main message from recent prints, not just the last one, is that the unemployment rate has not risen as everyone had forecast to 6 per cen, and jobs are still being created at a pace consistent with trend economic growth.
Data abroad includes German CPI and initial jobless claims in the US.
“Keep on with the force don't stop...Don't stop till you get enough!”