- Markets are very active this morning as rumors and macroeconomic jitters roil
markets. Futures ran up respectably in the premarket after the May nonfarm
payrolls data came in much, much lower than expected (-345K V -520Ke), making
for the smallest decline in the series since last September, coupled with the
first upward revision of the back month data in nine months. But equity indices
immediately gave back gains after the NY open, dropping straight into negative
territory in the first hour of trade as rumors circulated that the nonfarm
payrolls number had been significantly miscalculated (with speculation
centering on a fishy birth/death adjustment). Labor Secretary Solis denied the
rumors in a statement around 10:30amEST. By 10:45amEST indices had bounced back
into positive territory. Rumors aside, the May annualized unemployment rate hit
9.4%, a bit higher than expected and now over the psychologically-important 9%
level. PIMCO's Bill Gross chimed in right after the data, noting that he
believes things are now worse than the government's "more adverse"
scenario for unemployment used in the stress tests. Front-month NYMEX crude
peeked above $70 this morning before trading back down to around $68 as
strength in the Dollar weighed on commodities.
- Trading in US Treasury markets was wild this morning as the jobs data and
comments from the Fed's Lockhart sent yields flying. All eyes were on the jobs
figures, but about 15 minutes before the nonfarm payrolls release Lockhart
reiterated his belief that it was imperative the Fed doesn't wait too long to
begin tightening and that he is neutral on the notion of increasing long term
Treasury purchases at this time because it could imply "purposeful
monetization." Yields were at six-month highs heading into the jobs report
and surged on the much better than expected non-farm payrolls figure.
Interestingly the curve flattened noticeably as 2-year rates moved up a
staggering 25 basis points. The benchmark 10-year yield approached 3.9% on the
spike but has since backed off to 3.8% while short term rates continue to push
higher. The benchmark spread was trading at another all time high of 280bp pre
data, but is now dipped back below 260bp. The Dec Fed fund future has sold off
and now prices in roughly a 70% chance the Fed hikes rates at the end of the
year, although Bill Gross said he doesn't see the Fed raising rates anytime
soon because unemployment likely won't peak until the end of the year.
- The ADRs of Rio Tino and BHP opened up +9% and +7%,
respectively, after the announcement of their game-changing iron ore JV
overnight. BHP has been the big winner of the breakdown in Rio Tinto-Chinalco
negations, which has Rio walked away from. Rio shareholders
had been vehemently opposed to the deal with Chinalco, voicing concerns that
the deal would have been a fire sale of valuable assets during a period of
unprecedented market turmoil, not to mention the uneasiness over a loss-making
arm of the company's biggest client (China) having access to the company's
board and pricing agreements. Analysts have noted that BHP appears to have now
achieved its main objective of last year's failed takeover of Rio Tinto, namely
synergies at Pilbara. For an equity investment of $5.8B, BHP expects to
generate $10B in savings in the near term.
- Press reports this morning discussed Apple's plans to launch a cheaper
version of the iPhone at its developers conference next Monday. In addition,
the WSJ writes that Steve Jobs is likely to return to work this month. Chip
giants Applied Materials and Intel have been commenting on the state of the
market. AMAT's CEO told the Commercial Times that there are no signs of a
stable recovery in demand in the global chip market. More specifically, he said
that while the decline in demand has bottomed, orders are coming only from China,
not the US and Europe.
Intel's EMEA Chief concurred, noting that the slump may have hit bottom, noting
that he expects to see demand growth in the second half of 2009.
- In other equity news, Merck is down 2% on news that a Phase III study of its
Rolofylline drug did not meet the primary or secondary efficacy endpoints for
acute heart failure. Guess? is up a respectable 6% after beating revenue and earnings
estimates in its first quarter earnings report. Midcap retail services firm ABM
Industries is up 10%% after missing estimates slightly but reaffirming its 2009
guidance. IT services Agilysys is off 5% after a disastrous Q4 report.
- In currencies, the greenback was steady heading into the payroll data. The
deceleration in job losses indicated by the data, combined with recent signs of
stabilization in housing and manufacturing, may signal the economic slump is
easing. Still, dealers are keeping in mind that US
consumers are spending less and saving more than in quite some time. USD and
JPY were initially weaker on the rise in risk appetite from the positive data;
EUR/USD tested 1.4265 in the initial knee-jerk market reaction. However, the
miscalculation rumors and Lockhart's comments quickly reversed USD sentiment.
All in all, the USD has maintained a firm tone for most of the New
York session, with the EUR/USD testing below the 1.40
handle and GBP/USD dipping below the 1.60 level.
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