Hope Dwindles on Jobs
Market Commentary
By WSS Research Team

By Carlos Guillen

The highly awaited jobs report arrived today and appears to have shattered the momentary optimism that had been building since the ADP data. Even Goldman Sachs had increased their estimates less than a day before the official government results. The numbers were simply depressing, particularly in light that most on the Street were actually hoping for a better than expected result. The fact is that the jobs data has been poor for the entire second quarter, and the consumer has finally began to lose confidence in what appeared to be strong job growth during the first quarter of the year.

According to the latest data from the Department of Labor, the unemployment rate in June remained constant at 8.2 percent compared with that of May, meeting the Street's consensus estimate of 8.2 percent. Clearly the unemployment rate remains painfully high; however, there was a bit of a positive side to the data. Given that Civilian Non-institutional Population increased by 191,000, the economy was able to employ 128,000 individuals, while the unemployed and those not in the labor force increased by 29,000 and 34,000, respectively. So in essence, the economy was able to absorb most of the population growth, leaving the unemployment rate unchanged.

However, the most demoralizing aspect of the jobs report was that non-farm payroll employment increased by much less than expected. The report showed that the increase in non-farm payrolls was just 80,000 while the Street's consensus called for a gain of 105,000, and many on the Street were even talking of at least reaching 110,000. In fact, even Goldman Sachs raised its own non-farm payroll forecasts from 75,000 to 125,000, after the ADP report showed an increase of 179,000 non-farm jobs. So clearly, everyone was ramping up expectation even if not made formally, which is why the actual result was so shocking. As it stands, the average non-farm increment during the June quarter was just 75,000 per month, which is much lower than the average increment in the March quarter of 226,000, demonstrating a sharp deceleration in non-farm payroll growth. Even looking at the first six months of the year we can see deterioration in jobs growth. The average monthly increment in non-farm payroll was 150,000 during the first six months of this year, which is still running lower than the 161,000 per month achieved in the first six months last year. So while many believed that perhaps the warmer weather had caused an uneven distribution of employment growth, the data is showing there is a deceleration of jobs growth independent of weather.

The net effect of the jobs data has certainly been negative today as reflected by the sharp downturn in equity markets, with the Dow Jones Industrial Average sinking 155 points or 1.20 percent. The only solace we can find at the moment is in that the poor jobs data may finally induce the Fed to put forth another round of quantitative easing, and if that does not work, well… Canada is starting to look more and more attractive.

Madrid Mauling
By David Urani

You didn't forget about Spain did you? In fact, before that rancid US employment report hit, futures were headed lower anyway as 10-year Spanish bond yields broke back above that 7% psychological danger zone. I think part of it was lingering disappointment that the ECB wouldn't do more to help the EU banking system, and also from a flash headline from an EU source that was doubtful that the proposed direct bank recapitalizations would go through. Ay caramba!

Consequentially, Spain's IBEX 35 index was off more than 3% today and guess what; that means it has now erased all the previous gains made after that EU summit. While many initially felt Chancellor Merkel "blinked" at the EU summit, a second look shows that she actually continues to stand firm. This week, she's been quoted as saying that none of the bailout rules have been changed since the summit. And so the questions on Spain's banking system have been rekindled.

On the NYSE, BBVA (BBVA) and Banco Santander (SAN) are down more than 5.5% each. They are down approximately 12% and 10%, respectively in the past two days.

Add together the ideas that EU debt is back under the microscope and that the US jobs data, while bad, wasn't quite bad enough to spark QE3, and we get a euro that's down 0.9% to a 2-year low against the dollar.

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