Gold and silver gave up their safe haven gains this morning in New York, as the U.S. non-farm payroll report for February posted a larger than expected jump. According to the Bureau of Labor Statistics, 175,000 new jobs were added to the U.S. economy last month. Analysts, using the ADP private sector payroll report from earlier this week as guidance, had expected 150,000 new jobs.
The unemployment rate increased to 6.7%, as more long-term unemployed began actively seeking work again. The serial blizzards of January had caused many to hunker down and try to keep warm, which had dropped the labor participation rate (and therefore the unemployment rate) for the beginning of the year.
The NFP report, combined with the encouraging “Beige Book” economic outlook, all but assures that the Fed will taper its quantitative easing injections of money into the economy by another $10 billion at this month’s meeting, bringing the amount of newly created money down to $55 billion a month.
The prospect of slowing down the devaluation of the dollar caused the greenback to spike up from 4-1/2 month lows this morning, but the DXY dollar index is still under 80. The Euro hit a 2-1/2 year high after the European Central Bank refused to inject more liquidity into the Eurozone economy. The yen weakened as safe haven demand dwindled, helping Japanese exporters. The Nikkei hit a five-week high to close the week.
Stocks in China and Hong Kong were shaken, as the unthinkable happened and the Chinese government refused to ride to the rescue of ailing Chaori Solar, allowing it to become the first Chinese company to default on a corporate bond. This puts teeth in the government’s warning that it would not prop up failing businesses in over-capacity sectors such as solar panels, coal, and steel, letting “nature take its course.”
The economic news in China and the U.S. have overshadowed the political crisis in the Crimea, where the Russian-installed parliament has voted unanimously to break away from Ukraine and re-unite with Russia. The Russian Navy towed a derelict warship from a scrapyard at their naval base in Sevestopol, and sank it in the entrance to the bay where the Ukrainian Navy was harbored, trapping them inside. 35 unarmed international observers were stopped at the Crimean border by groups of soldiers wearing no insignia, who threatened them and refused to let them proceed. Russian soldiers have taken over the airport in Crimea’s capital, and flights to the Ukrainian capital of Kiev now have to leave from the international gate, instead of the domestic gate.
The European Union, which has $600 billion a year in trade with Russia, has refused to impose sanctions, much to the frustration of the Polish prime minister. If there are no further movements by the Russian military, the next big event in Ukraine will be the public referendum in Crimea on March 16th. The choices will be to get greater autonomy from Kiev, but remain a part of Ukraine, or to return to being Russian territory, as it was before 1954.
It promises to be an eventful week, as the Federal Reserve Open Market Committee meets two days later, on March 18-19, to decide on monetary policy going forward.