While a number of markets will be closed today for the feast day of the Epiphany, in the US they aren’t and we get down and dirty with the first payrolls report of the new year.
Strictly speaking, of course, it’s the last payrolls report of the old year but who’s going to argue. The persistent strength of risk asset markets over the last two months has lots of people worried and, to be frank, I suspect they’ll be looking for any excuse to sell.
Its an old wisdom that people get fired for being short a rising market and not for being long a falling one but the temptation to lock in some profits is overriding even though the thought of going defensive five days into the New Year is sincerely counter-intuitive. Consensus on the headline number for today’s release of the December nonfarm payroll is for job creation of 175,000 but given the softness in the private payrolls reported yesterday, - the ADP had been forecast at 175,000 but reported at 153,000 - I suspect the market will be positioned for a more disappointing figure.
Let’s face it, if one focuses on enough statistics, one is always going to find something to either justify whatever one is doing or to distil a post-factum reason for any move which markets might happen to make. Alan Greenspan was the master when it came to finding obscure studies and periodic releases which he used to support whatever he was going to argue. That has in turn, over the past couple of decades, led to levels of tea-leaf reading which has gone silly. I once had a business school professor who, when teaching a course on balance sheet analysis, advised us that if we were still not satisfied once we had run through the 4,677 ratios that could extracted from the accounts, there still remained the option of dividing anything by the date. When sitting in front of screens, it is so easy to get over analytical, to forget what one is really trying to understand and to lose sight of the forest for trees.
The FOMC minutes told us quite clearly that the Federal Reserve will need to sit back and observe how things develop under a Trump administration before deciding on what to do next and when - it is also bracing itself for the unknown unknowns - so it would be fatuous of us to get ahead of ourselves in micro-analysing upcoming data. That said, at the end of the day the economic realities of employment, inflation and currency stability will remain at the centre of monetary policy and in the longer term such matters will always come ahead of political machinations. Both business and consumer confidence are currently high enough for us not to have to fear the economy suddenly falling off a cliff. A sub-5% unemployment rate says it all.
The first rating week of the new year is not a good one from which to draw any meaningful conclusions, not least as banks are still busily running around rebuilding their trading inventories. Simpler minds tend to believe that the underlying bid emanates from insurers and pension funds having lots of new cash allocated but more seasoned players are aware that the institutional chaps are mostly occupied with year-end reporting and that the last thing on their minds is making taking big market bets. So, to coin a phrase, the lunatics are still running the asylum.
Walk, don’t run
I was chatting to another old market dog earlier on this week who was pretty relaxed about things and who was of the opinion that chasing clients much before January 20 did more damage to one’s relationship than good. I’m sure we all know the old joke about the son bull and the father bull…
Remarkably, all the excitement (or panic) over the US election outcome has distracted from some of Europe’s on-going issues, not least the migrant crisis. We are, of course, still in deepest mid-winter so the flow of people is at its seasonal low. Politicians have also learnt that it is a subject best left alone for it is impossible to win an argument against the resurgent right. Best let Geert Wilders, Marine Le Pen and the various players of the AfD rant on without entering into discussion with them. Thus, even in the aftermath of Berlin, focus is on what happened in the past and not what might lie ahead when the weather improves in spring. A reduction of hostilities in Syria might change the narrative but it’s hard to imagine that it will reduce the flow.
Apparently the Austrian ministry of defence has tabled a proposal that lays out a policy under which applications to enter the EU to seek asylum would need to be submitted outside the Union, along with the introduction of caps on how many refugees each member state would be obliged to accommodate. I’m not quite sure what the authors of the paper might have been smoking but if they think desperate people will suddenly cease to adopt desperate measures, they’ve surely got another think coming. Any attempt to apply a rational solution to an irrational problem is programmed to fail.
I attended a lunch yesterday - if you’re wondering whether all this lunching is taking a toll on my bodyweight, you’re absolutely right - in the middle of one of the UK’s major fruit and vegetable growing areas. It is here that the influx of internal EU migrants is both most needed and most felt and where veritable armies of pickers have flowed in from the eastern end of the Union. These people are essential to the economy but then remain in the area out of season where they become, in the eyes of the locals, benefit tourists. The local infrastructure is under strain and the schools, so I was told, are filled with children who speak no English and who slow the education process to the detriment of native youngsters. I can’t comment as I have no direct experience but it’s sure that where there is smoke there must be some fire. One suggestion that seemed to gain traction and which appeared to please even the most ardent complainants was that benefits should be paid to the migrants but that the level of the benefit should be identical to the one they would receive in their home country. I don’t know much about the subject but I do have to admit that this seemed to be a line of thought possibly worth pursuing. I’d be happy to hear opinions.
Alas, it’s that time of the week again and all that remains is for me to wish you and yours a happy and peaceful weekend. The younger ones will be back to school and the older ones might just wake up for long enough to pack their bags and head off back to university with all their clothes washed and ironed by mum and their pockets lined with a bit of cash from dad. The last of the curried turkey should have been eaten and the decorations taken down, boxed and returned to the loft. Life is, in other words, going to become quiet, drab and boring again. How good does that feel!