A Melman Minute
| By | Leonard Melman |
|---|
Actually, of the two countries, the jobs reversal indicated by Statistics Canada's figures released this morning was even more startling than those issued by the Department of Labor to the south. Canadian economists had been forecasting a moderate growth in job creation only to learn that the country had actually lost 45,900 jobs during December and the nation's Unemployment Rate rose to 7.2% compared to 6.9% in November.
America's data was also negative as the number of new jobs created plunged to only 74,000, the lowest monthly gain in three years. However, due to the statistical quirk of eliminating those who have dropped out of the unemployment rolls because they have ceased looking for work, the Unemployment Rate in America was reported to have fallen to only 6.7% compared to the November figure of 7.0%.
Markets were quick to react to these dismal numbers, as the following short-term charts indicated.
US DOLLAR
The Greenback plunged sharply on the news. In our opinion, the drop was due to anticipation that the Fed would be forced to take renewed measures to stimulate economic activities; measures which could include the creation of additional units of currency. Commodity prices such as gold (see below) and the petroleum complex rallied on the US Dollar's decline.
It is also worth noting that the Canadian Dollar accelerated its move to the downside on the release of that nation's jobs data, falling to well under 91.60 cents US.
30-YR US TREASURY BONDS
Bond market investors reacted to the jobs news by charging into those markets, driving quotes higher and interest rates lower, a possible indication that the financial investment community expects the Fed to renew its efforts to drive interest rates lower in order to stimulate new economic activity. In fact, the Fed has so far adopted a noncommittal stance following release of the data.
DOW INDUSTRIALS
Strangely enough, financial markets reaction to what appeared to be decisive data was strangely muted with the Dow Industrials initially staging a moderate rally and then quietly returning toward 'unchanged' and then moving further to the downside . Our 'guesstimate' would be that pessimism regarding the actual data was offset by optimism relating to the presumed likelihood that the Fed would not soon abandon their QE programs.
GOLD
Gold had rallied somewhat during overnight markets due to favourably-interpreted Asian import data, but, as can be observed, it initially reacted to the jobs data release by falling to near $1,227. However, strong buying then came in to drive the price up to near $1,245. Our interpretation is that the buying reflected the belief that Fed easing would not only continue at high levels, but could even increase with resultant upward pressures on debt, money creation and ultimately, inflationary expectations.
It will be interesting to watch reactions during the rest of the day and throughout the weekend.
CHINA IN THE NEWS
For many years, a great deal of the world's attention has been directed toward the Chinese economy with specific emphasis, from our point of view, on commodities demand - specifically including precious metals - created by advancing prosperity within that huge country. Therefore, when new indications emerge that China may not stay on the path toward continuing rapid economic expansion that becomes is a matter of some considerable importance.
An article published in today's Wall Street Journal tells us that growth in China's all-important export sector could be slowing down. While their domestic economy is undoubtedly growing stronger, exports still play an important role and any slowdown in that data could have repercussions throughout the world. The article notes that Chinese authorities reported exports during December to the rest of the world were up only 4.3% compared to the year-earlier month, a significant drop from the comparable November figure of 12.7%.
This report comes on top of other data which suggests China is also struggling with rising labour and real estate costs as well as a currency which is increasing in relative value, thereby serving to diminish China's traditional production cost advantages.
China's Shanghai Composite stock index has been declining sharply for the past six weeks and now threatens to break below the psychologically important 2,000 level and is not very far from setting a new multi-year low.
This trend should be a matter of concern for the international mining community.
GOLDEN CRITICS (almost) EVERYWHERE
I must admit that as a holder of contrarian points of view, I am somewhat delighted to see the enormous surge in published negative commentaries regarding gold's future. It seems everyone from bank advisors to general investment gurus to politicians to central bankers has been ploughing in with negative opinions for this year and beyond for the yellow metal. Some of the most negative comments have actually come from some of gold's strongest past supporters.
A particularly important new entry into this parade of negativity, Moody's Investors Services, strikes us as being of more than ordinary significance. Moody's offers a widely-followed financial rating service, covering many items from national, municipal and industrial bonds to the financial status of individual companies and when they speak, many people listen.
Their latest comments on gold were released yesterday and not only did Moody's lower their forecasts for gold and silver's price projections for the next two years to $1,100 and $18 respectively, but they also indicated that the credit ratings of some major miners could be in for downgrades which would make it more difficult for them to raise capital.
We have seen clusters of negative gold and silver comments previously during the past 30 months, but this time around, in our opinion the current crescendo of negativity could be reaching climactic levels - and should that be true, then we may indeed be receiving an indication that an important reversal to the upside may very well be in the works.
As of 8:00 AM, financial markets in both Canada and the USA are diverging with the Dow Industrials down by about 45 points while Canada's TSX Index is rallying on stronger commodity prices and is ahead by about 80. Precious metals continue to trade higher with gold up by $17 to $1,245 while silver has gained more than 50 cents to near $20.20 per ounce. Base metals have moved sharply higher on the weaker US$ and mining share indexes have gained more than 2% on average.
In other markets, the US Dollar Index continues to trade to the downside, off by 41 basis points to 80.70; Crude Oil has gained 71 cents to $92.37 per barrel and the TYX Index of rates on 30-year US Treasury bonds has fallen by a sharp 51 basis points to 3.822%.
All quotes US$ unless otherwise indicated.
Next Melman Minute scheduled for Monday, January 13, 2014.