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US corporations cut 80k jobs in March, marking the third consecutive month of job losses. The unemployment rate rose to 5.1 percent, the worse since September 2005. This drop was greater than the market expected, but will only be the beginning of even steeper losses. The March payrolls number does not include the latest jump in jobless claims, which have hit recessionary levels.

With the US economy deteriorating and ATA airlines and Aloha airlines cutting another 4000 jobs, the labor market will get worse. Therefore a 100k drop over the next few months is not only realistic but practically guaranteed.

Characteristic of the markets post non-farm payrolls, there has been alot of volatility in currencies. The US dollar first sold off, but then recovered back to pre NFP levels. Although the number may not be bad enough to force the Fed to cut by 50bp instead of 25bp at the end of this month, it will encourage them to take interest rates down to 1.50 percent.

Over the past 3 decades, the US economy has gone through 3 recessions. During these contractions, there were a string of job losses that lasted for a minimum of 10 months. We are already beginning to see this trend unfold and it will be months before we will actually see job growth. The largest single month job loss in each of the recessions was more than 300k. We wouldnt be surprise to see the same degree of job losses in this business cycle.

For the first time in over 2 years, jobless claims have breached the 400k mark. If we exclude the 2 weeks after Hurricane Katrina, these are actually the worst levels since the last recession. Taking a look back at time when there was a string of consecutive job losses, on average jobless claims were well in excess of 400k. This confirms that April will be an even worse month for the labor market.

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It’s been a long week for everyone dear reader, patiently waiting for today’s report to come and get the picture clear and set the markets free, it will be the judge of all analysis, all speculation, all false pricings, it will be the day to speculate on the next FOMC meeting.

Lets talk numbers in the beginning, the U.S. employers probably shed 50 thousands jobs in March, according to the most reasonable estimate in the market, while forecasts ranged between an addition of 65K jobs, or shedding 150K jobs, while unemployment rate is expected to increase to 5.0 after 4.8% in February, in general markets are getting prepared to a third month jobs decline.

Before we start to analyze it, let me go over all the reports that contributed in drawing the picture this week for today’s report, and the list of indicators that leads to laying the ground to the jobs report are being clear, from the ISM manufacturing to services, to the ADP employment report, and the four weeks average claims.

We will start the journey from the institute of supply management, which -by the way- both their indices were major market movers this week, and important drivers to the market movements, but what we follow the most here, is the employment indices in the reading, and here we find that for the manufacturing ISM, employment index actually rose to 49.2 from 46.0 in February, which gave the dollar some strength as some believe now that maybe the contribution of the manufacturing sector in the nonfarm payrolls would not be that bad, as we all know how interrelated the two readings usually are.

For the services ISM employment index, the reading was not that bad too, as we saw no change in the index, 46.9 in March, exactly as it was in February, which still gives a somehow pessimistic view, yet doesn’t hint for a deeper dawdle in the jobs market, overall ISM suggested maybe a better than expected jobs’ report.

The ADP on the other side showed that private sector in the United States added 8,000 jobs in March, when adding the expectations for governmental hiring which is 25,000 the ADP report suggests that a 33,000 jobs will be added in the economy, which is way better than economists forecasts that hints to a 50K drop in jobs. The ADP report has volatile since its inception in its relevancy and accuracy with the nonfarm payrolls, so we have to take it into consideration, but we can’t take it for granted.

And last but not least, the jobless claims climbed above 400K this week, marking the highest since September 2005, and giving a clear sign that the economy is actually in a recession according to some technical studies that give economists the clues about the state of the economy, the four weeks average claims climbed by 15.750 to 374,00 the highest since 2005 as well, and the continuing claims rose to 2.94 million the highest since 2004, this report turned the table again to those who believe the jobs market will mark a deep plunge today.

Mr. Bernanke was quiet clear about it; he said that the jobs market will weaken further more in the second quarter; he said that he sees a slight contraction in the economy, less spending, less sales, just the typical recessionary indicators, so we expect that the jobs report today will just show what Bernanke expects, but the most important thing is how much is that gonna effect markets.
With a reading that is actually less then 50-70K drop in jobs, that will be a real market mover that with a 5% unemployment rate, that will be worst case scenario, yet the best case scenario is to see a number actually above 10K, that will in away or another give the impression that the problem in the labor market is not as bad as we think it is.

Dollar has been wondering around for a while now, and I think today might be just the day to set the movement clear and put it back on the right track, it will be the moment of truth for bulls and bears, and a victory will be declared, between dollar bulls who got happy for almost a week now, and between triumphant natural bears, who won the battle since the beginning of the year, today we will see if the jobs market is the horn of the bull, or the arm of the bear…

Crown Forex

disclaimer:The above may contain information for investors/traders and is not a recommendation to buy or sell currencies, gold, silver & energies, nor an offer to buy or sell currencies, gold, silver & energies. The information provided is obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. I am not liable for any losses or damages, monetary or otherwise that result. I recommend that anyone trading currencies, gold, silver & energies should do so with caution and consult with a broker before doing so. Prior performance may not be indicative of future performance. Currencies, gold, silver &energies presented should be considered speculative with a high degree of volatility and risk.

The greenback slumped against the majors on the heels of softer US economic data, ahead of Friday’s key jobs report. Weekly jobless claims crept above the 400k-level to 407k, jumping from 366k a week earlier. Although the services ISM figure for March edged out consensus forecasts to 49.6 and improving from 49.3, it still remains beneath the 50-level that distinguishes expansion from contraction.

Traders will turn their attention to March non-farm payrolls, estimated to post a loss of 60k jobs, and compared with 65k lost in February. The March unemployment rate is also seen deteriorating, climbing to 5.0% versus 4.8% a month earlier.

Euro Recovers

The euro bounced off its overnight lows just above the 1.55-level to trade back above the 1.56-mark by the New York session. Weak Eurozone economic reports undermined the single currency, with retail sales for February missing consensus forecasts, falling by 0.5% versus a 0.4% increase a month earlier and down 0.2% compared with a 0.1% decline in the previous year. The Eurozone services PMI fell to 51.6 in March, down from 52.3 in the previous month, while Germany’s services PMI declined to 51.8 from 52.2.

A barrage of comments from Eurozone officials revealed further displeasure with the currency’s strength. France’s Finance Minister Lagarde said the net effect of the current currency situation is painful for the Eurozone. The Eurogroup’s Juncker expressed displeasure with disorderly foreign exchange moves and excessive currency volatility. However, Belgian Finance Minister Reynders offered an opposing view, saying the strong euro was not such a big problem at the moment. Meanwhile, the ECB’s Garganas reiterated the Bank’s hawkish stance, calling the recent acceleration of Eurozone inflation as ¡®very worrying’ and that while inflation risks remain on the upside, it was important to not become entrenched in expectations. Moreover, he does not expect inflation to drop below 2% in 2009. He also echoed a similar tone on the euro’s strength, saying recent moves have been abrupt and raised concerns.

EURUSD recovered off its lows and hovers near 1.5675 with interim resistance seen at 1.57, followed by 1.5740 and 1.58. Additional ceilings are seen at 1.5830, backed by 1.5860 and 1.59. On the downside, support is seen at 1.5640, followed by 1.56 and 1.5570. Subsequent floors are eyed at 1.5530, backed by 1.55 and 1.5470.

MG Financial Group
http://www.mgforex.com

Angelo Airaghi is a Commodity Trading Advisor, registered with the National Futures Association and the Commodity Futures Trading Commission. He has been an active professional since 1990 working for major international financial companies. In the past 10 years, Angelo Airaghi has been an analyst and commentator for national and international media.

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Interest in the carry trade has faltered this past week, but it is clear from price action in the high and low yielding pairs that the market isn’t ready to give in to risk. Over the past week, both NZDUSD and AUDUSD have seen considerable pull back from the multi-decade highs. On the other hand, there has been a break in momentum at the short end of the yield curve. The Japanese yen’s steady advance has been stalled with a sizable reversal across the FX market.

What’s more outside the volatility of the spot currency market, money market rates have actually held relatively consistent across the yield curve, suggesting the market is waiting for a clear outlook on the health of the financial markets and global growth. Through the past week, exogenous news has done little to improve the general appetite for risk. Two major investment banks announced sizable write downs on debt-related losses, bond insurer FGIC saw its credit rating slashed to a level just above junk, and Fed Chairman Ben Bernanke forecasted a recession for the world’s largest economy. Besides tomorrow’s NFPs release and the G10 meeting scheduled next weekend, there are few scheduled events on the horizon that could ultimately guide risk trends. Therefore, the market will likely rely on general sentiment and surprise news to guide the carry trade.

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All that is needed to understand the carry trade concept is a basic knowledge of foreign exchange and interest rates differentials. Money shifts from around the world in seek of the highest yield and the benefit of trading currencies is that you are dealing with countries that have interest rates, which are charged or received every single day. If you are positioned on the side of positive carry, you have the right to earn that interest, which can be quite lucrative over time.

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Hurrah and huzzah! The credit crisis is over, it’s all sorted, everything is fine and buying opportunities abound. No, I…

… haven’t had a moment of clarity on the road to a financial Damascus but I been told the credit crisis is no more and it is time to buy. Who are these prophets of glad tidings, uttering soothing words as they sally forth to convert the bears? Are these respected men who deserve to be heard? Are they “fishers of men” or bottom fishers?

I read their words and realise they are no fishers of men, moreover they are more likely to have had a stall in the moneylenders area of the temple. “Wait” you cry, “let me judge for myself, show me these words”. Of course I will, here you go, first up Dennis Gartman, yes that Dennis of the Gartman Letter:

“Our Int’l Index has fallen from its high of 10,300 to its recent low just under 8,000… a break of just a bit more than 23%. We can now say with some resolve that the lows have been seen. The panic that was the SocGen sell-off in mid-January, and the panic that was yesterday morning were the lows. Henceforth we shall be buyers of equities as weakness is to be bought rather than strength sold. We note this as a WATERSHED. Our long standing clients know that we say this rather rarely, and when we do, we mean it.”
I like Mr Gartman, he is good and one day I’d like to be as good as him. He has though made a fundamental error. Its not that he thinks the markets have bottomed, or that he sees a buying opportunity, he might be right, who knows? It is much simpler than that. He is judging market conditions on the size of a drop in an index.
Think about it, how many times have you seen and heard this recently: “a bear market is defined by a drop of 20% from the peak”? The keyword is defined, not completed. I could go on and question the definition but I haven’t the space in this article, as long as you have thought about it, job done.

There is more that one prophet of glad tidings roaming the financial landscape today. This one is much more worrying. Here is part of an email I received today from Citywire:

Credit crisis over says top fund manager
By Danielle Levy | 14:50:28 | 02 April 2008

Bill Miller of Legg Mason Investment Management believes the Bear Stearns bailout two weeks ago marks the end of the credit crisis.

The manager of the Legg Mason Value Trust, Legg Mason Value A Dis A USD and Louvre Gestion’s America Value funds says that on hearing this news he ‘put fresh money into the pot’, namely his own funds, which he admits is something he rarely does. He says that the Fed’s opening up of the discount facility to investment banks has allowed spreads to come in, leading to a rebound in financials.

Miller and co manager Mary Chris Gay are currently overweight financial services, technology and consumer discretionaries. Within the financials sector Miller singles out housebuilding stocks as an area he is investing in. He says that although the area attracts negative press, he believes the stocks are starting to outperform and points to the recent healthy performance of the index.

He has also increased his fund’s exposure towards financials with less risky balance sheets and a lack of exposure to structured products, and highlights the US Bank Corporation and Capital One as stocks to watch.

Moreover, he says investment banks such as Merrill Lynch and Lehman Brothers, may be ‘the next place to move’.

However, Miller is also predicting further consolidation within the financial system and says we could see potential changes to capital requirements within investment banks. He says that we may well see companies like Merrill Lynch and Lehman Brothers partnering with other banks, like HSBC and Wachovia, before the next credit cycle is over.

He says the current system is suffering from over capacity and as a result of this, he predicts the incentive structure of investment and commercial banks are likely to see changes.

Again, if you read the snippet above, I don’t need to say much than this: remember dot.com / telcom 2000-2003?
Finally today, an update to this article Automobile wreckage. It isn’t just Ford and GM It’s not just housing that’s getting downright ugly. Stories of people living in cars may be rather optimistic. Here are some figures that should make talk of recovery sound somewhat early, all figures year on year:

GM, SUV and truck sales down 22%, car sales down 14%
Ford, SUV and truck sales down 16%, car sales down 10%

Toyota SUV and truck sales down 14%, car sales down 7%

Honda SUV and truck sales down 12%, car sales up 3%

Nissan SUV and truck sales down 20%, car sales up 10%

“I’d like to be able to tell you that the worst is behind us, but I really can’t give you that assurance,” Jim Farley, Ford sales and marketing.

“There’s no question that the industry and the economy is in a weakened state,” Mike DiGiovanni, GM.

Share prices rose for Auto shares by between 1-3% on the day the figures were released. Maybe people just drive to Damascus these days.

Market Snippets

Mr Bernanke told Congress that he saw tighter credit for small businesses, lower grade corporations and commercial real estate. He said the US economy could improve in H2 and that housing is the problem. He also mentioned that the Federal Reserve was aware of UBS problems for some time and had worked with the Swiss authorities. The Federal Reserve lending facility (PDCF) made available to primary dealers should prevent more problems.

CHARLOTTE, N.C. (AP) - Wachovia is considering ending their infamous Pick-A-Payment mortgage loans in 17 California counties that have been hit hard by falling home prices and rising foreclosures. The loans offer customers four different payment options each month. Critics say the loans can cause borrowers’ balances to increase and carry higher rates. If the loans are discontinued, it would appear to be the first pullback for the nation’s fourth-largest bank since Wachovia Corp. acquired that type of loan product when it purchased California-based mortgage specialist Golden West Financial Corp. in 2006.

Commentary by Mick Phoenix

on behalf of An occasional letter from The Collection Agency

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. The views in the article are for informational purpose only.

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