Sunday, January 9, 2011

US jobs data disappoints

US markets fell on Friday, as bank shares took a hit after Wells Fargo and US Bancorp lost a foreclosure court case. The S&P 500 edged 2.35 points or 0.18% lower to 1,271.5, while the Dow fell 22.55 points or 0.19% to 11,674.76. For the week, the S&P 500 gained 1.1%, while the Dow rose 0.8%.

US employment data disappoints

US non-farm payrolls rose 103,000, less than the 150,000 that was expected. However, jobs gained in November were revised upward from the initial 39,000 to 71,000. While the December unemployment rate fell to 9.4%, lower than the 9.7% expected, it was attributed to a large number of people who gave up searching for a job.

The disappointing jobs report reconfirmed investors' view that the Fed will continue with QE2. Earlier in the week, an ADP report showed the US added 297,000 private-sector jobs in December, the largest monthly gain since 2001. This had buoyed investors' hope for strong job gains.

Portugal on the verge of a bailout

Newspaper reports from Europe today show that Germany and France are increasing pressure on Portugal to accept a bailout from the EU and IMF. Portuguese government 10-year bond yields rose to a record high of 7% this week, as investors looked ahead to a $1.25 billion auction on Wednesday. Analysts and investors will be paying careful attention to the auction.

Last week, Portugal auctioned $500 million euros of 6-month bonds. The country was forced to auction the bonds at a yield of 3.68%, significantly higher than the 2.04% in September. In fact, one year ago, the yield on similar bonds was 0.59%.

Looking ahead to next week

As it appears that Portugal will have to accept a bailout package sooner or later, negative news from the euro zone will likely hurt markets next week. If the experiences of Greece and Ireland are any indication, these bailout processes tend to drag on for a while, hurting stock markets along the way. Investors will also be wondering if Spain will be next in line to be bailed out.

The US is also not without concern. While recent US economic data have been positive, causing most analysts have have bullish forecasts for US equities in 2011, municipal bonds are a concern. The ever-growing deficit at the State and Municipal level could lead to defaults of hundreds of billions of dollars, as Meredith Whitney warned 3 weeks ago.

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