All Eyes On U.S. Nonfarm Payrolls

By: PaddyPowerTrader

Equities overcame Wal-Mart's gloomy outlook to finish only modestly lower yesterday buoyed by Microsoft's rollout of Windows 7 today. In the final hour of trading, investors seemed cheered by news of a breakthrough agreement that could help curtail home foreclosures. Senator Richard Durbin hailed a decision by Citigroup to drop opposition to legislation that would give bankruptcy judges the power to eliminate some mortgage debt.

Today's Market Moving Stories

• Monetary policy continues to push on a string i.e. it really doesn't matter if central banks cut rates to zero if commercial banks won't either pass the benefit on or even lend money. The latest example of this is yesterday's US consumer credit outstanding numbers for November which were much weaker than expected, falling by a record $7.9bn. Another take on this conundrum is offered by the London Times as savers are deterred by the miniminal rates . It remains a deleveraging credit staved world out there.
• The US Fed has quietly begun to take baby steps towards full blown quantitative easing with the announcement that they are to buyback (retire) bonds maturing in 2011 and 2012.
• The global rate cut fest continues with the Bank of Korea loping off another 0.5% to take rates to 2.5% to shore up the economy.
• Yesterday's mega successful bond launch by the NTMA on behalf of Ireland should help temporarily take the heat of what was beginning to look like a funding crisis for the Irish Government.
• Crude oil prices fell for the 3rd straight day on renewed worries about demand destruction.
• And yes, as you thought, the taxpayer is getting done over by the banks on their bailouts .

ECB Specialist Topic – “The Bleeding Obvious”
Uber hawk ECB council member, the highly influential Axel Weber, said that Eurozone Q4 growth may have been weaker than expected, weighing on growth projections for the coming year. Well hallelujah. What a devastating piece of economic insight. The ECB are dinosaurs.

Did you see the German factory orders number Wednesday? Down 27% and change. The ECB will cut by 0.50% next Thursday I feel. Ignore the increasingly tabloid and frankly infantile FT which is becoming about as reliable as the Torygraph for business news.

Obama Promises An Aggressive Plan
The countdown is on for the arrival of the cavalry / fireman. In a broad policy speech, President-elect Obama promised the full court press and reiterated his determination to aggressively counter the economic and financial crisis. The new “American Recovery and Reinvestment Plan” will be big: “it will certainly add to the budget deficit” and “will save or create at least three million jobs.” This 3 million figure is up from the original 2½ million, perhaps reflecting the 533,000 jobs lost in December. Finally, Obama made clear that it will extend to financial markets, with efforts to “get credit flowing”, “address the foreclosure crisis” and “prevent the catastrophic failure of financial institutions.”

This plan could be passed as early as mid-February, with stimulus to the economy starting in maybe March. Obama's speech is part of a broader effort by monetary and fiscal authorities to build confidence by clearly announcing an aggressive battle plan. Peter Schiff though, who is one of the best around pours some cold water of peoples high hopes.

Equities

• Bank of Ireland is to effectively put its UK residential mortgage business into near run-off. In line with the deleveraging strategy announced as part of its interim numbers back in November, Bank of Ireland is going to significantly reduce UK residential mortgage book from the current size of $29bn. They won't be sourcing through intermediaries anymore. Since the majority of business is sold through brokers and following the sale of the Bristol and West branch network a few years back, the UK business is pretty much being run off. That will take some pressure off funding and for them. This is a politically acceptable way to delever (at least as far as Ireland is concerned).
• The lights have gone off in the home of Irish rugby (Limerick) with Dell moving 1,900 jobs to Poland.
• After the bell last night America's 2nd largest oil company Chevron warned that their Q4 earnings are likely to be “significantly lower”.
• Germany's banking ugly duckling Commerzbank has been part nationalized with the state taking a 25% stake. This strongly suggests to me that Teutonic banks are in far worse shape than official speak to date has suggested.
• Heineken downgraded by Credit Suisse, Nestle is a sell according to JP Morgan and Nissan is under pressure after its job layoff announcements yesterday.

Data Today
US nonfarm payrolls at 13.30 are the main data release today. This could be the worst U.S. monthly jobs number in 50 years (-629k in 1956 to beat!). However, following Wednesday's huge decline in the ADP employment change, any hugely negative number won't have such a strong effect, as it led to many economists to revise their forecasts heavily to the downside. I therefore think the release would need to be very bad for equities to sell off significantly.

The consensus forecast of polled economists on Bloomberg is for a –520k number but in reality traders are braced for a far worse print. In short my view is that there are a lot of bets already placed on a truly woeful report.

And Finally… Always Ahead Of The Curve

Disclosures = None

By The Mole
PaddyPowerTrader.com

The Mole is a man in the know. I don’t trade for a living, but instead work for a well-known Irish institution, heading a desk that regularly trades over €100 million a day. I aim to provide top quality, up-to-date and relevant market news and data, so that traders can make more informed decisions”.

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