This morning's surprisingly strong U.S. jobs report adds to
the broadly positive tone of all recent economic data, likely
putting the December Taper issue front and center all over again.
The market's initial reaction to the payroll data, with stock
futures going down and treasury bond yields going up, points to
that Fed-centric thinking.
Before we talk some more about the U.S. jobs 'shock', let's not
lose sight of the positive data out of China today about the
country's all-important trade sector. Chinese exports showed
better than expected momentum in October, allaying some of the
fears raised by the unusually weak export numbers in September.
Along with China, we also got export data for Korea and Taiwan
today that showed similar strength. Today's data takes us back to
the promising trend line that had started forming from the August
and July trade numbers but was distorted by the surprising
decline in September. The steadily improving U.S. economic
picture, as evident from recent ISM, GDP, and today's jobs report
and favorable outlook for Europe all bode well for China's trade
On the U.S. jobs front, the October non-farm payroll report came
in better than expected, contrary to what everyone was looking
for. Not only did the October 'headline' number come
significantly above what the market was looking for, but the
numbers for preceding two months were revised higher.
Some are referring to the jobs gain as unusual, not reflective
of ground realities, and likely to be revised down in the coming
months. But I don't see it that way, as all recent economic data
has not been showing any meaningful impact from the government
shutdown. Thursday's Q3 GDP report wasn't expected to have any
effects from the shutdown, but it nevertheless showed a lot of
resilience, even though the growth was coming from less desirable
areas. But the two ISM surveys were very strong and didn't show
any shutdown-related effects. Importantly, the employment
components of both surveys had shown improvements, essentially
foretelling what we found in today's jobs report.
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A charitable view of this report can be that it isn't way off the
past year's trend line. The headline gain of 169K in August
compares to the preceding 12-month's average of 184K. Consensus
expectations hadn't budged much following Thursday's inline ADP
reading, but many had been looking for a much stronger number
given the momentum in the two ISM surveys and the very low level
of Jobless Claims.
Those data points appeared to show that improved economic growth
could more than make up for the rising interest rates as a result
of changes to the Fed's QE program. The Fed is likely fine with
this environment and will move towards 'Taper' later this month,
but the stock market may not get the economic and earnings growth
that it has been pricing in.
The jobs 'shock' will likely be the dominant theme for the stock
market today, but we will witness the first 'normal' trading for
) after the stocks more than +70% pop on its trading debut. It
goes without saying that the New York stock exchange did an
excellent job of handling this hot IPO, clearly differentiating
itself from Nasdaq's mishandled Facebook (FB) debut. In other
corporate news, shares of
) will be in the spotlight after better than expected results
from the companies after the close on Thursday.