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Monday, 11 December 2017

Scary jobs, Wappingate and Bond Vigilantes

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Well, I couldn’t have been more wrong on the US labor report; my word were those figures disappointing. At least I have two mitigating factors.

Firstly, just a few minutes before the release, one major US investment bank sent out a message to clients stating: “Obama to make an announcement on payrolls at 10:30 EST. Note that when Bush did this back in the day, it usually meant that the number was strong”. At least I was not alone in getting it horribly wrong. Secondly, I am pretty certain that nobody positioned on the back of my opinion and so no damage will have been done other than to my self-esteem. Having trawled through the numbers, there is absolutely nothing in terms of a redeeming feature which anyone can find; a truly lining-less cloud.

Anthony Peters, SwissInvest Strategist

Anthony Peters, SwissInvest Strategist

This places President O’Bama in an invidious position. The deadline for the increase in the federal debt ceiling is drawing closer and, already weakened from the dismal Democrat electoral performance in November, he now being forced to face up to what looks like a failing economic policy.

I would be prepared to cut him considerable slack for he took office in the depths of the most significant economic crisis to hit the country in three quarters of a century. However, he appeared to be so imbued by his own ideology which was formed in the years of hubris that he was unable to grasp that he was not just standing in a few inches of water but the that liquefaction was affecting the very ground he was standing on. Whether it is the O’Bama administration which has failed or whether every and any administration would have sunk into the same black hole is a moot point. Alas, there are plenty of PhD theses’ worth of material in that subject alone but that does not help dealing with the present.

The miserable 18,000 non-farm jobs which the economy created in June – the May figure was also revised down from a weak 54,000 to a dismal 25,000 – and the deeply disappointing 57,000 jobs created in the private sector which was never enough to make up for increasing job losses in the public sector has severely damaged the President and although he was quick out of the blocks in defending himself, the Republicans will now see themselves as being in the ascendancy in their objection to tax increases and in favour of spending cuts. Fact is that America will need both and as long as the debate rages on an “either-or” basis, progress will not be made.

US equity markets were pretty well-behaved in light of the poor numbers and did little more than give back to gains which they had made on Thursday – the Dow still closed 30 points higher on Friday than it had closed on Wednesday and overall it made about 250 points on the week leaving it just 200 odd points off a three year high. However, the treasury market took it all very much more seriously with 10 years closing 1½ points higher on the day which represents an 18bp fall in yield which brought it perilously close again to 3%.

Price action on Friday was unusual as the 10-year jumped on the number and then stuck there with no sign of it wanting to trade back. Treasuries opened today more of less where they had gone out in New York. Bills have not yet returned into negative nominal return territory although at 2.3bp, the yield on 3-month bills isn’t all that compelling either.

Rupert in his own scrum

It was amazing seeing Rupert Murdoch arrive in England to find reporters and photographers door-stepping him; how quickly things can change. He is still clinging on to Rebekah Brooks. I get this horrible sense of Citizen Kane; the rise and fall of a media magnate. The snap decision to close the News of the World has been met with nothing but derision and in some way it looks like a very weak and misguided gambit.

The main prize, B-Sky-B, might still elude Murdoch and a few voices in America are beginning to question the methods News Corp might be applying there. The 7.6% fall in the stock price over two days to $16.75 is nothing yet and until or unless it falls below $14.00 there is nothing serious to worry about trading volumes are high. The NotW phone hacking issue it unearthing all manner of dubious practices in the three way relationship between the police, the press and the political class and this entire situation has the potential to become a very British Watergate. However, whereas Watergate showed investigative journalism at its absolutely best, “Wappinggate” is doing the very opposite.

Bond vigilantes

Finally, to get the new week off to a cracking start, both Spain and Italy are under the cosh. Spanish ten year spreads to Germany opened this morning at a Euro-era wide of 297 bps. There is also an out-break of panic with respect to the state of Italian government finances.

This is now getting a bit silly and I would suggest that some of the “bond-vigilantes” ask themselves what would happen to them if their bank or building society took a strict view of their ability to redeem their mortgage at call. Seeing as that most of them hold a mortgage based not on their base salary but on their “total comp” at the time they took it out, they would most of them be junk rated themselves if future bonus prospects were included in forward projections. Hmmmm.

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