With Europe effectively shut down today it looks like it will be a dull day.
Chinese CPI came in a bit higher than expected at 3.6%, and was largely a result of food inflation, tempering the hopes that China would ease more aggressively. PPI came in as expected at -0.3% signaling that the production slowdown continues.
Portuguese banks borrowed a new record from the ECB. The path and trajectory seem clear and a Greek-like restructuring seems the only likely outcome. European politicians remain afraid of letting the “contagion” spread, but the reality of the situation seems pretty obvious, let foreign banks take a loss now on Portuguese bonds, or shift more of the burden to taxpayers while Portugal continues to deteriorate – making the final cost higher, and letting the people who originally made the mistake avoid the losses.
The only thing the market here really has to focus on today is the jobs situation and what it means for QE. There is a fair amount of “spin” out there today showing that the job data wasn’t out so bad. Frustratingly, at least for me, is the number of people who denied the weather effect or seasonal adjustment problems, who are now talking about those factors as though they believed in them all along. Clearly economists didn’t believe them, or else expectations wouldn’t have been 100,000 higher than the actual number.
The job report was not horrible, but not only had expectations outpaced reality, a housing recovery had driven by the increase in jobs had become conventional wisdom. With poor housing data all year long, and this subpar jobs report, the hope for a material bounce in housing has diminished greatly – or at least it should have. The shattering of the myth of the jobs led housing recovery is having a bigger impact on the market and is more important than just missing on jobs alone.
The weird thing about March is that the weather was also great. Those who are now blaming the weakness on earlier great weather seem to be missing the point that March had a lot of great things going for it as well. The weather was great, and it should have been less affected than January and February by capital goods tax breaks that expired in year end. Thinking that March covered the “weather and seasonal adjustment” pullback is likely wrong, and the April number could be downright scary.
We haven’t heard the QE arguments yet, but that is likely to start in earnest. Big firm after big firm is likely to send out a report discussing how the masses had not only written off QE3 prematurely in any case, but this NFP number bolsters the case for early action. If Ben alone could make the decision, I would fully agree, but in spite of his power, there seems to be enough dissent to the policy that maybe, just maybe, he will need something worse than 120,000 jobs to make a compelling case for another round of balance sheet inflation and degradation (increasing the size of the balance sheet with more risky assets).
Look for a bounce at some point today. The fact that the futures haven’t really been able to bounce, and in fact have traded in a very narrow range despite the size of the initial gap lower, makes me think stocks themselves will struggle more on the open. With short covering and some real last “buy the dip” attempts, using the “not so bad” and “qe” chatter as justification, we probably see levels better than the current levels at some time today. I will be looking to add some risk around the open, particularly in SPX, IG18, and HYG.