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Global Market Wrap-Up - April 7, 2014

Monday, April 7, 2014
Mark Hanna

5 Themes for the Week

1) Last Friday's Employment Data - With the 192,000 jobs officially added in March, the U.S. hit a milestone of sorts in Friday's employment data; the private labor force finally is back to the size it was pre-recession. It took over 6 years to get back to where it started. Net of government job losses however, the country is still not back to where it was. Of course in that time both the country's overall population and its pool of working age adults have grown but it shows you the depth of the recession and the shallowness of the recovery at least in relation to job creation.

With revisions, the first quarter of 2014 came in at 533,000 jobs added versus 618,000 in 2013. The labor force participation rate did tick up to 63.2%, which is a six month high. Typically this number has ranged in the 66-67% range for decades, which would put the normalized unemployment rate closer to double digits if we still retained that many people in the official work force. For those who view these numbers in a market context, they are not anything to move the Federal Reserve off its current course. Speaking of "Goldilocks", this past Friday was the first down day for U.S. market on a jobs report Friday in a year.

2) Is the ECB Preparing to Join the Global Wave of Quantitative Easing? - Up until recently it seemed German pressure would stop the European Central Bank from joining the British, Japanese, and American central banks in a global spate of Q.E. But some hints have been dropped in the past few weeks, and after last week's ECB meeting (where there was no action) it was reported that the ECB has simulated a QE program deploying as much 1 trillion euros in bond purchases. Mario Draghi's comment last week that the Governing Council is “unanimous” on exploring tools including asset purchases prompted a surge in euro-area bonds. Buying sovereign bonds could be politically and legally difficult. The ECB’s founding treaty forbids it from financing governments, and Draghi would also have to choose which countries’ bonds the central bank should acquire. Hence the focus could be on private debt if the bank were to unleash its own QE program.

3) Institutional Investors Back Off U.S. Housing Market - In February 2014, 5.9% of all U.S. property sales were purchased by institutional investors (defined as an individuals or groups that have purchased at least 10 properties in a calendar year) down from 7.2% of sales the year before. February was the third consecutive month the share of institutional investor purchases declined, after 19 consecutive months of year-over-year increases. So one might ask if the smart money is slowing down, what does it bode for the real estate market as a whole?

4) Temporary Workers Surge in U.S. at Expense of Full Time Workers - Speaking of employment, the quality of work is as important as quantity. In that regard, the U.S. employment picture gets even murkier. "Temps" have accounted for 10% of all jobs created since 2009, according to government data. Temp hiring often accelerates after downturns, as companies look to control labor costs. But many labor experts now believe the continued hiring of short-term workers marks a structural, lasting shift in the job market. Close to 40% of all temp jobs are now in manufacturing, a ratio that has risen steadily for several decades.

5) China Rolls Out Another Mini Stimulus - In 2009, China's government went on a massive spending spree akin to 23% of GDP. Now years later, much of that debt is going bad but the country unfortunately is still stuck in that pattern as it tries to maintain growth in a slow growth global economy. China's State Council unveiled Wednesday a combination of spending moves that include additional spending on railways, upgraded housing for low-income households and tax relief for struggling small businesses. This tax items extends existing tax breaks to small businesses until the end of 2016 and would raise the threshold for taxing smaller businesses, which have been struggling as economic growth slows.