The big news this morning is non-farm payrolls in the U.S.
Payrolls came in at 248,000 new jobs created, far exceeding expectations of 215,000. Numbers for August were also revised upward to 180,000 from 142,000. Unemployment figures beat projections of 6.1% by dropping to 5.9%. Because of how the Labor Department now calculated unemployment, however, this number stood in contrast to the dreadfully low labor participation rate, which has dropped again to its lowest level since 1978.
Markets had a dovish response to the positive data. The DXY dollar spot index rose another 1% after touching a new four-year high. Even with the reverse in the stock market on Friday, Bank of America Merril Lynch Global Research reported that some $10.1 billion in funds were pulled out of stocks worldwide this week, with over $9 billion flowing into bonds. Nonetheless, the 10-year Treasury note yield rose four basis points to 2.47% on the jobs data after precipitously dropping 10 basis points to a monthly low on Wednesday.
Yesterday in the Markets
The euro saw its best day in 7 months on Thursday after ECB President Mario Draghi provided a rough outline of the central bank’s plans for purchasing asset-backed securities (ABS) over the next two years. The total size of the stimulus is expected to be around 1 trillion euros. While he would only commit to saying the ABS purchases would commence sometime this quarter, Draghi responded to calls for greater action by reiterating that these measures would take place “according to how the medium-term outlook for our inflation expectations will develop in the coming months. Not coming years–coming months.” Inflation in the EU came in at just 0.3% for September, its lowest in almost five years.
The major U.S. stock indices were mostly unchanged.
Dow Jones: 16,801.03 (-7.22) -0.02%
S&P 500: 1,946.17 (+0.34) unchanged
Nasdaq: 4,430.195 (+8.11) +0.18%
DXY: 85.633 (-0.339) -0.39%
While stocks largely stabilized, precious metals continued to slide.
Gold: $1,214.30 (+$1.30) +0.11%
Silver: $17.10 (-$0.08) -0.47%
Platinum: $1,264.00 (-$12.00) -0.94%
Palladium: $765.00 (-$9.00) -1.16%
Economic News Affecting Gold
As the dollar remains strong, downward pressure is being applied on gold, oil, and the other commodities. September saw the largest monthly outflow from commodity ETFs since December. WTI crude oil fell below $90 for the first time in 17 months, while Brent crude has entered a bear market after dipping more than 20% below its 52-week high.
The economic outlook for the EU continues to be mixed following Draghi’s delineation of the ECB’s plans on Thursday. While the major players Germany, France, Britain, and Spain continue to worry over weakness in the recovery, the fledgling economies of Southern Europe did see a boost on the announcement. Draghi mentioned that risk standards for additions to the ECB’s balance sheet would potentially be lowered in order to include assets from Greece and Cyprus. While retail sales in the EU rose 1.2% in September, Eurozone PMI came in well below expectations at just 52.4.
The Associated Press reported yesterday that a New Jersey trader, using a high-frequency trading (HFT) platform, has been manipulating commodity prices. Michael Corscia is being charged with executing fraudulent trades by sending false signals to the markets in order to capitalize on price movements before ultimately canceling the orders. This tactic can be especially devastating with high-powered electronic trading programs that can execute large volumes of trades in fractions of a second. Corscia’s New Jersey trading firm already paid $2.8 million in fines last year for similar behavior, influencing price trends with large volume orders that they had no intention of executing. If convicted, he could face decades of time in prison.
In an interesting twist of irony, former Fed Chair Ben Bernanke made comments yesterday about his own inability to refinance his mortgage. It seems Bernanke can’t even take advantage of the easy money policies that he helped implement! He suggested that lending standards may be excessively tight, though you would be hard-pressed to find many sympathizers for the former central banker’s plight.
Geopolitical News Affecting Gold
Unrest in Hong Kong relating to the massive pro-democracy demonstrations this week have been depressing gold sales in Asia. The protesters have taken up the mantle of “Occupy Central,” clogging up the city’s largest commercial centers through peaceful demonstration. The timing is impeccable, as this week is typically one of the busiest of the year due to national holidays in China that bring an inflow of mainlanders to Hong Kong businesses and commercial hubs. Riot police have been deploying tear gas and the pro-Communist newspapers have been issuing threats in an attempt to break up the demonstrations; it is estimated that over $5 billion in economic activity has been lost due to the disruption.
Protesters have called for the resignation of C.Y. Leung (pictured), Chief Executive of Hong Kong. Leung is seen as too entrenched in the Communist establishment and has been accused of being a mere mouthpiece for Beijing. The city’s highest official has fallen out of favor with Hong Kong residents earlier this year after blocking the emergence of HKTV, an alternative television station startup. (Hong Kong currently has just two free public TV channels.) Thousands took to the streets in response to the nixed HKTV deal, perhaps setting the stage for the incredibly well-organized “Occupy” demonstrations. Protesters have been highly coordinated, with supplies such as water, goggles, and umbrellas (to protect themselves from tear gas) being made abundantly available to participants by protest organizers.
The minutes from last month’s FOMC meeting are set to be released on Wednesday, perhaps providing some tea leaves as to Fed policy regarding the end of QE. The big story for the markets, however, will be the outcome of the demonstrations in Hong Kong if they continue to drag on into next week.