Stocks Fly High With the NFP Report

Published by City Blaster on Mon, 11/03/2013 - 11:49 in
money printing

Daily Market Commentary for March 11: What an impeccable start stocks had in 2013! The record is brilliant with the S&P 500 already up 8.8%, pushed by improved economic data, US & Euro government rhetoric, currency wars, and an exponentially growing optimism. All excellent ingredients for a stock bubble.

Friday was an excellent day in terms of economic data as the payrolls report released in the US showed a better than expected headline number, with the US adding 236,000 jobs in February. Not even the most optimistic economist at Bloomberg thought about such a gain, but with so much money pumped into the system, the Federal Reserve is now reaping some rewards from its $85 billion monthly printing effort. In terms of unemployment, the gain was also substantial as it dropped to 7.7%. Unfortunately, on that front, much of the gain is related to people giving up looking for job. Specific measures that capture people marginally attached o the workforce and all those working part-time due to economic conditions still show high levels of unemployment. The U6 measure dropped from 14.4% to 14.3% in February but still much higher than five years ago when it was 9.0%. If payrolls grow at a pace above 200,000 each month there’s no doubt the unemployment rate will start dropping substantially, otherwise, we will have the FED printing money for a long time.

The initial reaction to the positive news led to a massive appreciation of the US Dollar against all major currencies and to a decline on gold prices (to the sorry of John Paulson!). Stocks also edged higher but not that much as the recent uptrend has already incorporated all kind of good news.

For now we continue to have a boring market with just one direction and that is North, unless Beppe Grillo can trick all us and scare investors away of risky securities. Italy suffered a debt downgrade, which reminds us of the still-not-solved-European-debt-problem but that shouldn’t be enough to trigger a sell off, at least for now.

I expect the US Dollar to be a star during the next weeks as positive data flowing from the US helps its bullish case. Gold and other commodities will continue to be pressured down, and against what many analysts have been saying last year, prospects for the precious metal aren’t that good for this year. Expect China to be on the spotlight again as inflation is edging higher and may lead to some cooling measures which will have a negative impact in demand for commodities. A fair price for gold now would be around $1,200, point at which real demand would start picking up again.