Calls for QE3 on Disappointing Jobs Data

Good day. It was a picture-perfect day here in St. Louis yesterday for our Easter celebration. It’s not often we can do that outside, but outside is the only place you would want to be yesterday! The grandkids were all dressed for the occasion, and they all looked as cute as can be.

Well, the jobs jamboree sure wasn’t cute on Friday. In fact, it bordered on ugly. You may recall that going into Friday’s jobs report, the ADP report on Thursday said the economy added over 200,000 jobs in March, and that the “experts” had forecast an increase in jobs of 205,000.

But after the Bureau of Labor Statistics (BLS) did all it could to goose the number higher, the total jobs created in March didn’t come close to those expectations, and posted 120,000 jobs in March. Uh-oh! And let’s not forget to check the jobs added by the BLS that they have no basis for adding. The total in March: 90,000. So in reality, without that “adjustment,” the total was really only 30,000, which is better than a sharp stick in the eye, but still isn’t the part of the things that economic recoveries are made of.

So as soon as the number printed on Friday morning, the calls for QE3 began once again. And we all know what happens when the markets get the itch to call for another round of quantitative easing, known as QE3. Yes, the dollar gets taken to the woodshed, and the big winners are the precious metals. And that’s what happened, albeit very muted, with the markets being thin and all on Friday.

Gold and silver reversed course and headed higher, along with the currencies, led by the euro (EUR). The euro gained back to 1.31 on Friday, but has given back some of that gain in the overnight trading. Most of Europe is on holiday today for Easter Monday.

The other thing we were going to look for this past weekend, while we dyed our eggs, was news from China about a reserve requirement easing. Well, that didn’t happen. I know you searched far and wide for that news. But China refrained from easing their reserve requirements because of the latest inflation report.

You may recall me reporting to you in the past that China’s inflation had begun to ease, and it looked as if the worst was behind them. Consumer prices rose 3.6% year on year. The previous print showed inflation at 3.2%. UGH! However, 3.6% is still below the Chinese government’s target rate of 4%.

Unfortunately, though, this kind of bump in inflation is going to put the kyboshes on any reserve requirement easing — for now, that is. I still expect this to come, but it will have to be done in the dark of the night to keep everyone from knowing.

So the news from China was not good news for Australia and the Aussie dollar (AUD). And this morning, it has quickly gone back below $1.03.

OK, so while the U.S. was reporting an increase of 30,000 (let’s use my numbers and not the BLS’ numbers — come on, play with me on this one), things north of here were not so muted when it came to jobs. Canada posted an increase of 70,000 new jobs in March, with their unemployment rate falling to 7.2%, from 7.4%.

A reader in Canada sent me a note last week regarding a poll that was taken in Canada…

They asked Canadians, “What will you do with your tax return?”

  • Fifty-one percent said they would pay down debt
  • Thirty percent said they would invest
  • Eight percent said they would take a vacation
  • Six percent said they would put it toward a big-ticket purchase
  • Five percent said they would go shopping.

What do you think the breakdown would be here? Well, given the recent results of the personal spending data, I don’t think you have to stretch the imagination too much to come up with the answer.

Another Canadian reader, and a someone I consider to be a friend, sent me a note on Friday, telling me that Bank of Canada (BOC) Gov. Mark Carney was interviewed and he “now feels the biggest threat in Canada is ballooning household debt brought about by sustained record-low interest rates. He then went on to say that he is monitoring this closely and is prepared to raise rates sooner than later if necessary.”

Well, that’s all good as far as words. But words are just that, if there are no actions to back those words… and I would bet that Mr. Carney is just leading the markets along in hopes that the U.S. realizes the damage they are doing by leaving rates at sustained record-low rates, and begins to hike rates, so he can, too. I guess we should give Carney some credit for at least acknowledging that having sustained record-low rates is damaging to the economy.

So until the BOC and Mr. Carney want to actually act on those words, the Canadian dollar/loonie (CAD) will drift, but I somehow can’t get past how the loonie should be stronger, given the data and the fundamentals. But it’s not.

But here the BOC is no different than most central banks from the G-10. They’ve all reduced interest rates to the bone, and done one or more stupid pet tricks with stimulus for their economies, and at this point, all these central banks have left is words.

Last week, I told you how I thought that the Japanese yen (JPY) was going to see some weakness because the repatriation that happens each year in March was over. Well, that hasn’t happened; instead, the yen has gotten stronger, albeit not by much, but stronger nonetheless.

I just don’t get the attraction to yen, but it’s there — sort of like when there’s a major starlet, and everyone thinks they are gorgeous, and I just don’t see it. I could list a few over the years that fell into that category, but then I would be in some hot water with the fans of those people! And you know me, I don’t like to be in hot water!

I take that back — I do enjoy the relaxing time I spend in a hot tub! I guess it’s the “hot water” with people I don’t like to be in!

Well, with China going back and forth with the daily valuations these days, the Singapore dollar (SGD) has had a really tough row to hoe. As I’ve explained on numerous occasions in the past, the S$ is in competition with the Chinese renminbi (CNY) for exports, so the two currencies usually move in tandem.

The S$ did get way ahead of the renminbi last year, but only briefly, and soon came right back into the fold. Since the renminbi was removed from the peg to the dollar in July 2005, it has gained 24% versus the dollar, and since that same time, the S$ has gained 26% versus the dollar. See what I mean about moving tandem?

OK, so maybe this isn’t something that I should be talking about in this type of letter, but I just couldn’t get past the ridiculousness of this latest law that the Supreme Court voted on. You do know that just last week, the Supreme Court voted 5-4 that jails can now strip-search anyone being put into the general prison population, even without suspicion, and even after the most-trivial misdemeanor arrest.

Where is the public outcry over this? We’ll spend hours on hours on the TV talking about Lindsey Lohan’s latest legal problems, but not one minute talking about this? Americans as a whole are paying next to zero attention to the loss of our individual liberties, and I, for one, think it’s sad.

To recap… The jobs jamboree on Friday was very disappointing, adding only 30,000 jobs (Chuck’s number, not the BLS’ number of 120,000), and sent the dollar to the woodshed for the day, with currencies and metals rebounding a bit. Some of those gains have been given back this morning, but the trading is muted, as most of Europe is out today for Easter Monday. No news from China over the weekend regarding a reserve requirement reduction; instead, China posted a stronger-than-expected consumer inflation number. So China isn’t out of the woods inflation wise just yet. And Canada posts a very strong jobs report for March, but the loonie drifts.

About Chuck Butler 105 Articles

Affiliation: EverBank

Chuck Butler is President of EverBank® World Markets and the author of the popular Daily Pfennig newsletter.

With a career in investment services and currencies extending over 35 years, Mr. Butler oversees all aspects of customer service and the trading desk for EverBank World Markets. A respected analyst of the currency market, Mr. Butler has frequently made appearances or been quoted by the national media. These include the Wall Street Journal, US News, World Report, MarketWatch, USAToday, CNNfn, Bloomberg TV, CNBC, and the Chicago Tribune.

Mr. Butler was previously the Chief International Bond Trader and Director of Risk Management for Mark Twain Bank, and has held significant positions in the investment industry since 1973.

Visit: EverBank

1 Comment on Calls for QE3 on Disappointing Jobs Data

  1. 3rd time round, and still most haven’t noticed what’s been endlessly published?

    QE from any CB is ONLY asset swapping, NOT injecting new financial capital
    (the CB buys back some T-bonds, trying to force prior owners into different portions of the T-bond spectrum, or out of T-bonds; still, all they’ve accomplished in musical financial asset chairs)

    The ONLY source of additional net financial assets is increased currency creation from the Treasury, via public spending.

    Hence, increasing the Fed Funds Rate target will provide those hoarding financial assets with a bit more passive income.

    However, there’s a much more dramatic approach to paying down private financial obligations. Provide the private sector with increased income!

    1) Aka: increased public initiative (public “spending”) distributes the fiat currency that a growing population needs. Until then, all the diverse transaction chains that make a complex economy inventive, remain constrained, simply for lack of access to denominating bookkeeping (i.e., fiat currency).

    2) Reduce FICA & other taxes, until more of the population has less debt & more income & savings.

    We’re making this much harder than it needs to be. It’s not rocket-science, and we already went through this once, ~1933. In larger population & highly complex economies, the cost of managing inter-dependencies becomes dominant, and the value of currency as a method for saving becomes negligible.

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