Once again the immediate outlook for markets and sentiment in the US economy rests on a monthly employment report (out tonight, our time about 10.30).
A month ago a burst of pessimism at the end of April was broken by a solid rise in jobs for April in the report on May 6.
Unfortunately that lasted a day and the May sell-down started the following Monday with a big plunge in silver futures on electronic trading in Asia and commodities crunched as a result, taking shares with them and sending bond yields down as some of the 2010 fears (Greece, debt, inflation, etc) reappeared like ghosts.
A month on and after a 2% plunge on Wall Street on Wednesday and more weakness in Asia yesterday, there’s a repeat underway.
The market is expecting around 180,000 new jobs (give or take 10, 000 to 15,000) in tonight’s report.
That is quite on the cards again, or perhaps bigger. Remember, employment is a lagging indicator, so if demand is slowing, employment could be up to five months behind.
The latest weekly employment benefits, out overnight, suggest a solid report.
The sell-off in the US on Wednesday happened for two reasons: surveys of manufacturing activity and confidence last month fell in many economies, but big falls were recorded in the US.
That came after a big fall in consumer confidence the day before and falls in other manufacturing surveys.
And then the so-called ADP employment figures came out.
ADP processes payrolls and some economists reckon it’s a good guide to how jobs figures are going.
Unfortunately, the ADP report showed only 38,000 new jobs (really pay packets) in May against forecasts of 178,000.
Of course much of the fears in the US are linked to the approaching end of the second round of quantitative easing by the US Federal Reserve, as it was a year ago.
Now there’s another big question: what will the Fed do when that easing (called QE 2 and not named after a ship), finishes at the end of this month?
After weeks of blithely assuming that all would be well, those tough guys in the markets, the hedgies, investment banks, big fundies and other crawlers along Wall Street, have gotten all scared that the cheap money punchbowl is about to be taken away.
If the US economy slides towards a new period of low or negative growth, watch the US deficit rise, debt surge and unemployment worsen, again.
Another recession will almost certainly bring a credit ratings downgrade for the US.
The US and its warring tribes (AKA Democrats/Obama and republicans/Tea Partyettes) have their date with destiny in the first fortnight or so of August when the money runs out.
The US government can’t spend any more and has to soon start cutting deep and hard because the debt ceiling means there are no more accounting tricks left to keep the balls in the air. Default time.
Moody’s Investors Service said overnight that it may place the US government’s debt rating on review for a downgrade if there is no progress in increasing the debt ceiling in the coming weeks.
"If the debt limit is raised and default avoided, the Aaa rating will be maintained," Moody’s said in a statement.
"However, the rating outlook will depend on the outcome of negotiations on deficit reduction."
Moody’s, which currently has a stable outlook on the Aaa rating, said a lack of an agreement on deficit reduction will likely result in a negative outlook for the rating.
The US dollar topped $US1.45, against the euro. Late last month it was trading under $US1.40.
Bonds rose back above 3% for the 10 year security.
Austerity is great in theory, but bad for growth, jobs and for long term political careers.
Just ask the former UK and Irish governments and the governments of Spain and Greece which are in diabolical political trouble.
And that brings us to the terrible depression in the US housing industry.
US house prices have fallen over completely and are now in a ‘double dip (more of that shortly), personal income is weakening, production and durable goods orders are soft and there’s a renewed fear of another slump.
No matter what the rises in new and existing home sales in April suggested, the industry is in a rather large rut and can’t clamber out.
The fall in US house prices is now worse than it was during the Great Depression.
That piece of information comes from the researchers at the research group Capital Economics.
It follows Tuesday’s news from the Case-Shiller house price survey that house prices fell again in March.
The S&P/Case-Shiller composite index of 20 metropolitan areas dropped 0.2% from February, seasonally adjusted, and 3.6% year on year.
Home prices hit another new low in the first quarter, down 5.1% from a year ago to levels not reached since 2002, after a 4.2% fall in the December quarter of last year.
In fact prices are more than 32% below their peak of five years ago.
Capital Economics’ senior economist Paul Dal
