First week of April...
Daily Pfennig

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In This Issue..

* Jobs come in higher...

* This week in data...

* Will the RBA raise...

* Is China sold on global recovery...

And Now... Today's Pfennig!

First week of April...

Good day...And welcome to the first week of April. Hopefully everybody was able to enjoy the weekend...I know I sure did. Chuck is feeling under the weather today and Chris is still on vacation so I've been called from the bench to Pfill in today. It's always tough to get going on a Monday morning so it will probably be short and sweet today. So, on that note...let's jump right in.

As Chuck mentioned Friday, we finally saw the color of the March employment figures and, as expected, we saw the jump most were looking for. Although the actual number of 162k was lower than the expected 184k gain, March represented the highest figure in 3 years. All three of the employment categories were in positive territory and each had revisions to the upside from last month's results.

Included in the March expansion were 48k temporary workers hired for the census. This is expected to have a greater impact on the jobs numbers from April through June when most of these hirings are supposed to take place, so many economists will be focusing on employment excluding government. The unemployment rate remained unchanged at 9.7% for a 3rd straight month, however, the underemployment rate, which includes part timers and those who want to work but have given up looking, increased to 16.9% from 16.8%.

The employment data also showed that average earnings per hour dropped and those who have resorted to part time jobs because they couldn't find full time work increased. Don't get me wrong, I want to see the jobs market climb out of its hole because this will be what ultimately brings sustainability to any type of recovery. Before I start jumping up and down, I need to see much more in the way of consistent growth. A report of 162k additions is certainly a starting point, but we have a long way to go before we make up the millions of jobs lost since the wheels fell off the cart.

Manufacturing, which has been one of the few bright spots, added jobs for a third straight month. Just to expand on my thoughts from Thursday when I touched on higher efficiency taking some jobs out of the market, investment in new equipment advanced 19% annually in the 4th quarter of 2009 when, at the same time, they also shed 269k jobs. In other words, companies were willing to spend money on technology instead of personnel in an attempt to do more with less people. Makes sense to me from a business perspective...this type of environment is when every penny is scrutinized and questioned as to whether it's a necessity.

Last week, Bernanke told Congress the unemployment situation is still very weak and 40% of the unemployed have been out of work for a long time. The pledge to keep rates exceptionally low was also reiterated so the employment picture looks to remain very fragile. In respect to historic standards, this is just a drop in the bucket but relative to the recent trend, the latest report is certainly a start. I think I've rambled on way too long here so I'll move on to what's in the closet for this week in data.

Its shaping up to be a fairly quiet week in the data department. This morning brings us the ISM non-manufacturing index along with pending home sales for February. The service industries are expected to show expansion as well. Traction in non-manufacturing businesses will hopefully catch wind from the manufacturing trickle down as 90% of the economy relies upon the service industry. Pending sales of previously owned homes is expected to see yet another contraction in February. Housing, which hasn't seen any type of sustained rebound, is expected to see another 1% hit after the 7.6% drop in January.

Tuesday will bring us the minutes of the last Fed meeting and should give us their general assessment of the economy, which doesn't expect to provide much in the way of anything that we don't already know. Unless they saw something that we didn't or remove the exceptionally low rate verbiage, it should pretty much be a non-event. We also get another consumer confidence report, so that rounds out Tuesday.

Wednesday gives us mortgage applications from last week and a gauge of consumer borrowing during February. We could see another rise in mortgage apps as buyers try to take advantage of the incentives before they expire, but the real estate market just hasn't caught that spark yet. Consumer credit is expected to see another increase, coming off of the first rise in a year from January, as car and student loans should be the catalyst. This figure tracks credit card and non-revolving loans and speaking of student loans, its expected that its proportion will increase as frustrated job seekers go back to school until the labor market improves.

Thursday has the typical weekly jobless and continuing claims, which are both expected to inch a little better, and a measure of retail sales. We then round out the week on Friday with wholesale inventories from February. We're expected to see a rise for the first time in 3 months, so I would think the increase in manufacturing would be supportive of the .4% expected rise.

Taking a look outside the US, we also have several rate decisions in store for this week. The Bank of Japan meets Tuesday and both the ECB and Bank of England meet on Thursday, with no surprises expected. The only thing that should impact the market would be any commentary released afterwards. The only action we could see is from Australia, as the RBA meets today.

The survey at this point is calling for a .25% rise to 4.25%, but economists are essentially split 50-50 on whether we'll see a 5th hike in the last six meetings. While RBA governor Stevens last week said home prices are getting too high and continued to express that rates need to get to more normal levels, other recent figures such as building approvals and retail sales have taken breathers as of late.

If we didn't see the falloff in those two figures, I would say April is all but a sure thing, but its looking like they may hold off in April and let more data come in before coming back in May. The housing market is the obvious risk but banks have been raising mortgage rates in step helping to provide some containment, however, employment is getting a jump start. As a mining boom is getting closer, employers are gearing up so inflation pressures are becoming a topic of discussion. Rates are going to continue rising here but the question remains how much and when.

The markets were fairly thin Friday so there wasn't too much action and when I stopped by the office yesterday afternoon, everything was pretty much spot on the prices Chuck gave us on Friday morning. I guess we'll get the reaction to the jobs report from all of the stock jockeys and senior traders that took Friday off so that could set the direction for the rest of the week. The only currency that really sold off last week was the Japanese yen, so if the risk takers feel comfortable with the employment picture, we'll see that trend continue as well as providing the support to the high yielders.

The People's Bank of China released reports on their web site Friday that they feel the US dollar would only have a limited scope if it were to appreciate this year due to our high deficits and desire to keep rates very low. They also expressed concern that asset bubbles are starting to appear and may pop unless supported by real economic fundamentals. They're basically saying that the rise in asset markets have been primarily the result of loose monetary policy and stimulus rather than macroeconomic fundamentals. So it sounds to me they aren't totally sold on the idea that we are out of the woods at this point, which I would tend to agree with.

As I came in this morning and turned on the screens, I see where the dollar has gained a bit in overnight trading. The Asian markets were thinner than normal as some enjoy a Monday holiday but it seems Friday's job euphoria has carried over into today and propped the dollar a bit. It also looks like we're seeing dollar support on the back of today's Fed Board of Governor's meeting to discuss the discount rate. The discount window is rarely used anymore and really has no economic impact but if it does get adjusted upward, we might see traders trying to parlay that into a Fed funds hike sooner rather than later. I guess so much for short and lets get wrap it up and head to the big finish...

Currencies today 3/31/10: American Style: A$ ..9202, kiwi .7041, C$ .9941, euro 1.3474, sterling 1.5234, Swiss .9403, European Style: rand 7.2650, krone 5.9482, SEK 7.1904, forint 196.67, zloty 2.8504, koruna 18.8136, RUB 29.1911, yen 94.51, sing 1.3986, HKD 7.7674, INR 44.5750, China 6.8257, pesos 12.2880, BRL 1.7646, dollar index 81.235, Oil $85.31, 10-year 3.95%, Silver $17.9275, and Gold... $1,126.45

That's it for today...I enjoyed the weekend with family and friends and got to see a rare home win by our St. Louis Blues. Although our playoff chances are over with, it was still a good game. I'm excited to see the big Butler and Duke gain tonight and the Cardinals season opener. Monday's are always busy so I have a million and two thing to get done before we turn the phones on this morning, so I should probably let you go for today. Hopefully I didn't wander around aimlessly today...on that note, have a great day.

Mike Meyer

Assistant Vice President

EverBank World Markets



Posted 04-05-2010 9:07 AM by Chuck Butler