What will happen today? China suspended its circuit breaker. Reuters reported China is also considering allowing the yuan to quickly fall as much as 10%-15% at the same time backing tighter capital controls. The decimation in oil is continuing and equity markets are roiled. AND then there is today’s unemployment data.
Will the data stem the drop? As widely discussed, 2016 is the worst start of the year in history for the major market indices.
Some think equities would cheer disappointing data given that such would reduce the odds of further monetary action.
I do not agree as I think the jobs market (and economy) needs some wage inflation that accompanies a stronger labor report. Yes interest rates may rise but greater jobs and wages will increase spending power and earnings.
Analysts are expecting a 5.0% unemployment rate, a 200K increase in both non-farm and private sector payrolls, a 0.2% increase in average hourly earnings and a 34.5 hour work week. The labor participation rate (LPR) is expected to remain unchanged at a 30 plus year low of 62.5%.
In my view, if the employment report indicates an unemployment rate of 5.2% and a 62.8% LPR, such would suggest a considerably stronger labor market than the consensus view. We need to get more people working utilizing the LPR as evidence. Yes such may increase the headline rate but such a scenario is an indicator of confidence/strength because workers are returning to the labor force.
Today could be significant. If the rout is over, what sectors will rally? Last night a CNBC participant stated the S & P 500 growth index is trading at 29x earnings. Value is trading at 11x earnings. Historically growth trades at 19x and value at 14x. Will monies gravitate into value as there is always a reversion to the mean?
Another CNBC participant commented 2015 was the most difficult and narrowest market in 72 years. Wow! No wonder why most are so miserable.
The data is released at 8:30.
Last night the foreign markets were mixed. London was up 0.42%, Paris down 0.23% and Frankfurt up 0.11%. China was up 1.03%, Japan down 0.39% and Hang Sang up 0.59%.
The Dow should open moderately higher as China moved to shore up its markets by eliminating the circuit breaker rule that vastly limited potential liquidity and set a higher reference rate for the yuan and directed state controlled funds to buy shares. To write the incredibly obvious, the markets are vastly oversold. The 10-year is off 8/32 to yield 2.18%.
WILL TODAY’S JOB’S REPORT STEM THE ROUT?
Ken Engelke
Chief Economic Strategist Managing Director
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