- August Employment data was pretty ugly:
- Nonfarm Payrolls was 0 vs 68k exp and 117k prev. The Verizon strike cut 45k from the total. The July print was revised lower by 32k.
- UE rate was unchanged at 9.1% as exp.
- Hourly Earnings growth fell -0.1% MoM vs +0.2% exp and 0.4% prev
- Hours Worked declined to 34.2 vs 34.3 exp and prev.
- The New York Times reports that the government has filed suit against more than 12 large banks for misrepresenting the quality of mortgage securities sold to Fannie and Freddie. The FHFA is seeking billions in compensation.
- The Trokia (IMF / EU / ECB) have suspended their fact finding mission in Athens. They claim they left to allow authorities to complete their technical work on the budget. There are indications that Greece is falling short of its targets and some are starting to discuss whether or not the three will release the September tranche of 8bn to Greece.
- Café and restaurant owners refused to pay a VAT increase in Greece. FT
- WSJ says US officials are pressing the company to show what measures it could take should conditions worsen further from here. The Journal says this was an “unusual” request from the Fed. BoA has responded w/a series of options, inc. potentially issuing a separate class of stock tied to the performance of its Merrill unit (a MER tracking stock).
- Eurozone PPI rose 6.1% YoY in July as exp vs 5.9% prev
- UK PMI Construction declined to 52.6 in Aug vs 53.2 exp and 53.5 prev
- Here are the bull and bear cases:
Also, equities are cheap, ISM printed above 50. Sentiment is bearish, perhaps overly so.
Bear case: the employment AND earnings data is bad, and has been getting worse for several months now. Regional PMI still suggests ISM below 50. PMI for the vast majority of countries globally has been falling and has broken or is close to breaking the 50 mark. Monetary stimulus has hit a barrier.
Conclusion: ultimately, it is changes in expectations that drive changes in asset prices. As a result, we should look at where expectations will be. On that front, the trend in the data is getting worse, we know that economic data tends to trend, and the catalysts on the horizon are all negative for growth – whether it is austerity in the US, the impact of Irene, or some sort of default in the EU. The most important sign may simply be funding costs. USD 3m Libor has been setting higher for over a month now, and it is unlikely that risk assets can rally until funding costs at least stabilize.