first-time jobless claims rise unexpectedly

8/14/2019 First-Time Jobless Claims Rise Unexpectedly

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First-time jobless claims rise unexpectedly CDS spreads widen

More U.S. workers unexpectedly filed for jobless benefits last week . Initialclaims for state unemployment benefits increased 8,000 (28,000 unadjusted) to aseasonally adjusted 480,000 in the week ended Jan. 30, the Labor Departmentsaid on Thursday. That was above market consensus of 460,000.

As for productivity , it kept surging during the fourth quarter at 6.2% annual rate and 7.2% in the third quarter (the biggest one-year gain since 2003) with labor cost

dropping 4.4% (0.9% for all 2009). This is not surprising since companies continue tolay off workers and wage are still in a deflationary environment (high and risingunemployment and continued delocalizations). Whilst this bodes well for corporateearnings, it is not encouraging for consumption;this recovery will not be sustained

without a brisk improvement in the labor market or a new stimulus package which, I hope, will never come since it would be disastrous beyond the short term effect,adding debt and leading to the eventual collapse of the economies concerned.It is notpossible to postpone needed adjustments by buying growth via successivestimulus packages without seeding even more difficult circumstances.





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This is combining with widening spreads in the debt markets. We have not finished with PIIGS countries in Europe (Portugal, Italy, Ireland, Greece and Spain). Greece is in a very bad shape and the main labor union today called for a strike: this does not bode wellfor the success of needed reforms to be implemented there. My next main worry is Spain,the fourth largest economy in the Euro-zone.

The EU's endorsement of Greece's budget plan is not going to calm investors’fears, if one refer to the poor track record of the EU with its own rules (look atFrance for example or past Greece trafficking of central Bank numbers to join the Euro):politics will always come ahead of reality, even if short term expedients are long termdetrimental to what federalist European politicians want. By the way, the Greek Prime

Minister points the finger at speculators, the usual scapegoats… (note that when they aregoing along they are investors, otherwise speculators), and not reassuring.





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It would be quite an irony if a new crisis was to originate in Europe withoutGovernments being able to blame the US for their own sins: a much too rapid integrationpushed forward by federalist politicians.

What is happening in Greece (and wait for Portugal and Spain) is just exemplifying that without deep reforms undertaken, lax fiscal policies, large public sector and unbearablesocial benefits coupled with an ageing population lead to run away budget deficits andcommensurate debts. Also, by not acting when they could (some still can, but time isrunning short rapidly), it is a certainty that markets will call the shots.

The risk is that the deterioration of sovereign debt spreads to the corporate sector which

seems starting to happen.

Markets, already fragile, have reacted negatively to the numbers and the deterioratingEuro-zone sentiment, deepened losses as I am writing (-2.3% for the S&P 500 and theDAX); banks are being hit very hard (-5.5% DJ STOXX 600 banks). Precious metals arealso taking a hit (gold -4%, platinum -3.9% and silver -5.3%) like Q3 2008.





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The Chinese market was a leading indicator in 2008 as were banks, bothdown and up. Watch bank indices and the Shanghai index together with the S&P 500and the NASDAQ: 200 days moving average have been reached and in the case of the DJEuro Banks breached with conviction.

One of my recommendations of the year was to stay away (or be short) of financial in2010: no change!

I will be away travelling to India for a couple of days, which should be most interesting,and therefore will not post any comment during this period.

Sources:

BCA Research - U.S. Q4 GDP Growth: Less Than Meets The Eyehttp://www.bcaresearch.com/public/story.asp?pre=PRE-20100201.GIF

Fullermoney http://www.fullermoney.com

Bloomberg: Greece’s Biggest Union Sets Strike, Threatens Cuts (Update1)http://www.bloomberg.com/apps/news?pid=20601087&sid=aN2G_2S_aP2M&pos=9

Bloomberg: Corporate Credit Risk Jumps as Sovereign Debt Woes Acceleratehttp://www.bloomberg.com/apps/news?pid=20601087&sid=a9ugUulle9A4&pos=5

United States Department of Labor: Unemployment insurance weekly claims reporthttp://www.dol.gov/opa/media/press/eta/ui/current.htm

first-time jobless claims rise unexpectedly

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