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The markets are not performing to order

Published Tuesday, May 6th, 2014

The most important economic data set of the month are US non-farm payrolls and on Friday they came in far in excess of expectations at 288,000. Adding to the good news January was revised up to 144,000 and February to 222,000 giving a monthly year to date average of 214,000. The 6 month moving average is now at 202,000.

The argument that 1Q numbers were distorted by the Polar Vortex has been vindicated and 1Q’s miserable GDP growth level of 0.1% is now forecast to metamorphosis into 3% this quarter. Unemployment fell from 6.6 to 6.3% but that did not set off the interest rate bell alarms as the labour force participation rate fell from 63.2 to 62.8% and average earnings did not rise at all. These are two of the critical measures of “slack in the economy” that Janet Yellen constantly points out.

Those are the facts. What is much less easy to explain is the market reaction. For the second consecutive month good figures meeting expectations produced a rally and then a sell off. The S&P, Dow, and Nasdaq all closed down on Friday, Treasury yields actually fell and the dollar was treading water.

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Posted by David Hufton