Making sense of the market sell-off
The Chase by Marty Cej:
"Yo no soy marinero, soy capitan, soy capitan…" If you ever wondered what the words to "La Bamba" were, drop by my office any time today. After throwing a birthday party for a four-year-old last night that involved a sing-along with requests from the audience, I can assure that I know every word to that song, as well as each verse for "Wheels on the Bus" and "Obladi Oblada." My selection, "Werewolves of London," failed to win enough support from the crowd to make it into the encore line-up. My wife's request, thankfully, failed to win any support at all. Can you imagine the looks of chagrin and distress on the faces of a backyard full of four-year-olds as our grizzled minstrel struck up Joni Mitchell's "Coyote"?
Yesterday's global stock tumble made it to the front of newspapers around the world with words such as "plunge," "turmoil," 'mayhem," "rout" and "nose-dive" in the headlines. Photos of traders wide-eyed with chagrin or pinching the bridge of their noses in distress as if made to listen to Joni Mitchell's "Coyote" over and over again accompanied these headlines. The Dow Jones Industrial Average recorded its biggest point drop since December 2008, the S&P 500 plunged 4.8 percent, the S&P/TSX Composite dropped 3.4 percent, oil fell to near $85 a barrel, the Canadian dollar saw its steepest slide in more than a year; even gold slipped as some investors decided to shore up their portfolios with a little cash. Our challenge today, like yesterday, is to answer the "why" as we report the "what." Why was yesterday different than the days before? Why did investors sell stocks en mass and flee to the relative safety of government bonds on Thursday rather than Wednesday? If stocks rally today and bonds fall, why?
The answer to that last question is likely to be found in the U.S. non-farm payrolls report, which is due out at 8:30 a.m. ET. In good times and bad, the monthly U.S. jobs report is the single-most influential economic data point in the world, prompting the sharpest swings in stocks, bonds, currencies and commodities. Today, in the wake of yesterday's global stock rout, that effect could be amplified. The U.S. economy is seen adding 85,000 non-farm jobs in July after adding a meager 18,000 the month before. Private-sector payrolls are seen rising 113,000 and the unemployment rate is expected to hold steady at 9.2 percent. Goldman Sachs, for one, expects an increase of 50,000 non-farm jobs and reminded clients this morning that the "unemployment rate has risen for three consecutive months and another increase would put it on the verge of a threshold that has historically been associated with recession."
Canada helped set the table for the U.S. jobs data by reporting a July jobs gain of less than half the average expectation. Statscan said the economy generated 7,100 jobs last month compared with expectations for a gain of 15,000. The unemployment rate, however, dropped to 7.2 percent, the lowest since 2008 and a glance below the headline shows a jump of 94,500 new private sector jobs even as government employment slumped by 71,500. In other words, there's something for everyone in this report. Doug Porter at BMO Capital Markets says the "details of this report are unambiguously healthier" than the headline and economist Diana Petramala at TD argues that, while "soft," the data implies that "going forward, sound employment intentions, and improving business sentiment should continue to support positive employment gains through the second half of 2011." What's this gonna mean for the Canadian dollar?
Just as the Canadian data was scrolling across our screens just after 7:00 a.m. ET, Procter & Gamble reported fiscal fourth-quarter earnings that topped forecasts then warned markets that first-quarter earnings per share would fall short of the analyst estimate by as much as 14 cents as commodity costs rise and the company struggles to pass on higher prices to stretched consumers.
French President Nicolas Sarkozy will discuss financial markets with German Chancellor Angela Merkel and Spanish Prime Minister Jose Luis Rodriguez Zapatero today at a hastily called meeting today. Officials from Japan and China are calling for global crisis talks as well.
Stock markets set to head higher amid relief over employment reports
The Toronto stock market appeared headed for a positive open Friday — a day after world markets took a savage beating — as a stronger than expected reading on U.S. employment for July calmed anxieties about the state of the American economy.
The U.S. Labour Department's non-farm payrolls report said employment rose by 117,000 in July, higher than the approximately 80,000 jobs that economists had expected. Also, the jobless rate edged down 0.1 per cent to 9.1 per cent.
There was more good news: the data also showed that the economy created 56,000 jobs more than originally thought in May and June. Source
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