Wall Street Gets in Position for Jobs Report
(
Updated with Challenger Gray & Christmas data, final closing prices of gold and mining stocks
.)
NEW YORK (
) -- All signs are pointing to a worse-than-expected nonfarm payrolls report Friday morning, market analysts say, but they argue that even a disappointing release won't put a significant dent in equity markets.
The Labor Department's official jobs report, due at 8:30 a.m. EDT Friday, is expected to say the U.S. economy lost 225,000 jobs last month, according to a
Reuters
poll of economists. The unemployment rate is expected to tick higher to 9.5% from 9.4% in July.
Equity markets have faltered leading up to Friday's report, with the
Dow Jones Industrial Average
stringing together four straight losing sessions ended Wednesday that lopped 300 points, or 3.1%, off the blue-chip average. While economic data related to housing and manufacturing have shown dramatic improvements lately, it appears short-term traders remain nervous about the U.S. job market.
Unfortunately, while the consensus is for a loss of only 225,000 jobs -- which would be the fewest jobs lost per month in a year's time -- there are worrisome indications that the number of disappearing jobs will be greater than economists are anticipating.
Ian Shepherdson, chief economist with High Frequency Economics, said that recent weekly claims numbers have been disappointing and that the downward trend appears to have stalled. Earlier Thursday, the Labor Department said initial jobless claims dipped to 570,000 last week from a revised 574,000 in the prior week. However, continuing claims rose to 6.23 million from a revised 6.14 million.
"With claims at the current level, there is little chance that the rate of decline of payrolls can be sustained at less than 200,000 per month, which means the unemployment rate will keep rising," Shepherdson wrote in an email Thursday.
Not helping matters, the
Automatic Data Processing
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employment report for August, released Wednesday morning, showed a bigger-than-expected loss of private sector jobs. The report said that the private sector shed 298,000 jobs in August from a revised drop of 360,000 in July. Economists had forecasted a decline of 246,000.
Paul Mendelsohn, chief investment strategist with Windham Financial, argues there are other troubling signs in the market ahead of the jobs data, including an exaggerated move in gold prices and Treasury bonds that could be front-running the August payrolls report.
Gold jumped $19.20 Thursday to $997.70 an ounce, its highest level in six months, while the dollar was slightly lower against many of the world's major currencies. The 10-year Treasury note was down 2/32 in price to yield 3.31%, and the 30-year bond was down 10/32 in price to yield 4.14%.
Mendelsohn argues that the surge in gold futures portends a weaker-than-expected employment report from the government. He argues that gold is being bought in anticipation of either inflation or the dollar going into a freefall.
"Inflation numbers are not severe enough, so the gold market is betting that something is going to happen to the dollar in the next 24 to 48 hours," Mendelsohn said. "There is something going on that smells funny. I suspect something is going to happen tomorrow that is going to send the dollar into a freefall, which would be a weak jobs number. Gold and silver are already moving in anticipation of it."
Mendelsohn said the recent slide in Treasury yields is another warning sign. A week ago, the 10-year note yielded 3.46% but had lately dropped to 3.31%. "The Treasury market is not indicating the market believes we're going to have a good report tomorrow," he said. "The bond market is telling you it's expecting a weaker number."
Art Hogan, chief market strategist with Jefferies, said that the argument that gold is foreshadowing a weak jobs number is "an interesting concept," but noted that he has "never seen gold as the precursor to negative economic data."
Instead, Hogan said that a greater-than-expected number of job losses will be taken in stride by the market, so long as it follows the recent positive trend. He notes the number of jobs lost in March totaled 652,000, while that number shrank to 519,000 in April and then 443,000 in June before July's loss of 247,000.
Instead, he says it is imperative that investors look at the nonfarm payrolls number as a three-month moving average. "The last three months of losses were 303,000, 443,000 and 247,000. To me, a 300,000 number will not cause everyone to head for the hills," he said.
Windham Financial's Mendelsohn agrees, saying the stock market has already positioned itself over the last few days for a bad number. "The shorts are already in place. Now, everyone is neutralizing their positions going into the number, just so they don't get caught going the wrong way," he said.
Both Mendelsohn and Hogan agree on fears of how high the unemployment rate will climb and its potential impact on the stock market. The unemployment rate unexpectedly fell to 9.4% in July from 9.5% in June, pushing the Dow higher by 114 points when the July report was released Aug. 7. This time around, there is fear a greater-than-expected climb would put an already fragile six-month rally in further danger.
Mendelsohn said an unemployment rate of 9.7% or 9.8% in August would be a "real disappointment" and could spark selling in equities. "Tomorrow is going to be a very interesting day, one way or another," he added.
Hogan, though, was not sure how high the unemployment rate would have to climb in order to scare away investors.
"Does 9.6% spook people? Estimates for the unemployment run from 10% to 13% in 2010," Hogan said. "We're going to start inching our way there, and given what we've seen with first-time unemployment filers, it'll happen soon. That's the part that scares me."
Of course, news on August's job market hasn't been completely miserable. Earlier this week, employment survey firm Challenger Gray & Christmas said layoffs planned by large U.S. companies dropped 21% to 76,456 in August from July's pace of job-cut announcements, the second lowest total of planned layoffs this year.
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, meanwhile, is reportedly planning to hire as many as 400 traders and sales people, half of which have already been hired.
Gold and mining stocks surged Thursday, following gold futures higher.
IAMGOLD
(IAG) - Get Report
gained 16.2%,
AngloGold Ashanti
(AU) - Get Report
climbed 5.3%,
Freeport-McMoRan
(FCX) - Get Report
rose 4.3% and
Barrick Gold
(ABX)
added 4.3%.
-- Written by Robert Holmes in New York
.
