U.S. Equities Take Away Year’s Gains After May 2012 Unemployment Increases from 8.1 To 8.2 Percent:
U.S. equities gapped downward and continued taking losses after today’s monthly unemployment report was released. The Bureau of Labor Statistics reported today that jobs grew by only 69,000. We anticipated slower growth compared to the early part of the year and lowered our economic outlook 3 weeks ago.
Stocks had the worst day since November 2011 and the Dow Jones Industrial Average turned negative for the year by 3:30 PM EST. Traders immediately focused on quantitative easing and expectations for more global liquidity increased after China’s PMI was weak.
Investors fled equities in favor of safer havens such as gold and some believe there is a greater than 75 percent chance the Fed will ease further in June 2012. The low unemployment level was predictable because initial jobless claims have been lackluster for several weeks. The bond bubble continues to work against equity traders even when 10-year bonds are yielding less than 1.5 percent.
More Liquidity Coming?
Expect announcements over the weekend and next week that all options from euro bonds, LTRO, QE3 and an extended Operation Twist are on the table. The Fed has been on the sidelines watching 3 months of lackluster jobs growth which make it extremely difficult for unemployment levels to hit 7.8 before the November elections. Jobs growth would have to occur at 400,000-500,000 each month for that to occur.
Each aspect the Fed has made clear would make more easing possible has occurred such as further weakness in Asia, Europe and the U.S. jobs growth trending definitively negative. It may be time for monetary policy creativity.