Recap 1-5-12

Main Items:

  • ADP payrolls jumped to 325k in Dec, sharply above expectations of 178k and 206k. This is the largest monthly increase in ADP payrolls on record. BUT the change in ADP employment reflects both a combination of the change in processed payrolls and jobless claims. As a result, it is not possible to decipher and quantify the effect of the change in claims from the change in payrolls in the sample.
  • US Non-Mfg PMI improved to 52.6 in Dec vs 53 exp and 52 prev.
  • US Initial Jobless Claims declined to 372k last week, vs 375k exp and 387k prev. The 4 week average is now at a 3y low.
  • Fed’s Bullard said Fed Inflation Targeting was possible this year.
  • US Vehicle Sales were basically unchanged at 13.6mm SAAR in Dec, basically in line with expectations.


  • UK Services PMI improved to 54 in Dec vs 51.5 exp and 52.1 prev
  • China HSBC Services PMI was unchanged at 52.5 in Dec
  • Australia Services PMI improved to 49 in Dec vs 47.7 prev


After a holiday hiatus, EU funding stress returned. 10y Sovereign spreads to bunds all widened sharply. Italian spreads (green) are now threatening the highs, while French spreads (white) have now retraced half of the recovery move.

The big question is whether recent strength in US data is negating the effect of EU problems. This chart of the SPX and the EU 5y financials CDS (white, inverted) suggests that some degree of decoupling has been evident, although if historical patterns hold, recoupling is likely to occur quickly. .

Note also that last week the AAII Bulls-Bears Sentiment survey hit the most bullish levels since early 2011. Note, however, that this contrarian indicator completely failed in 2010, although that may be because back then the recessionary pricing was unjustified. Whether that will again be the case this time around is unclear.

Furthermore, FT alphaville reports that both Nomura and GS thinks the ISM print on Tues was due to bad seasonality adjustments, impacts data from Nov-March, and estimates that a properly adjusted readings are ~2 pts lower. “If the true seasonal pattern remained unchanged, the result would be seasonally adjusted series that tended to look weaker in the summer and stronger in the winter.”

JPM: In Q4 2011, the percent of negative S&P 500 earnings pre-announcements matched its 2001 and 2008 peak.
Note that this is broadly corroborated by actual earnings surprises last quarter. The 3m average of the positive surprise – negative surprise differential is now sitting barely above the long term average. The last time this occurred was in April last year, just before we hit the highs.