September Job Losses Soar

Well… Friday’s Jobs Jamboree disappointed as I had the feeling it would, with 263,000 jobs lost in September. The unemployment rate also rose to 9.8%… Now we all know that when all the people who are truly unemployed are counted, the unemployment rate goes to 16%, but the Bureau of Labor Statistics (BLS) will have none of that!

On a sidebar, a reader sent me a note saying that I need to remember that the difference between the weekly initial jobless claims and the Jobs Jamboree is that the Jobs Jamboree “nets” out the jobs created to the ones lost, while the Weekly Claims only counts jobs lost… And that’s fair… I truly understand… The point I’ve tried to make – and probably haven’t done such a good job at – is to say that the BLS could use the Weekly Claims as their starting point… But they don’t… They use a “survey” instead… Dolts all of them!

So, the non-dollar currencies acted a little strangely on Friday after the Jobs report… The trading pattern for nine months now has been to reward the non-dollar currencies whenever the data was good for the US (one realizes that this is the exact opposite of what currencies trading on fundamentals would do). However, on Friday… When the disappointing jobs report printed, the currencies reacted as they SHOULD! They rallied against the dollar! Holy Cow, Batman… Are we returning to Fundamentals? I don’t know, folks… But we did on Friday…

Then this past weekend the G-7 Finance Ministers met and left… Without a word about the currencies… So, the rumor going ’round on Friday morning about G-7 handing over the currency watchdog duties to G-20, must be true… The thing that a lot of traders are looking at right now is the fact that G-7 hasn’t said that they are handing over their currency watchdog duties, and they ended their meeting with no statement whatsoever that they were concerned with dollar weakness.

So… Traders not willing to believe the rumors, believed that G-7 was giving the green light to further dollar weakness… For if it’s not a concern of the G-7 Finance Ministers, then why should it be a concern for those wanting to take the dollar lower?

And take it lower they have… But not by leaps and bounds, mind you… No, this has been a 1/2-cent move… It’s as though the traders are “testing the waters” to see if their thoughts on G-7 are correct or not.

The euro (EUR) also breathed a sigh of relief when the results of the Lisbon Treaty vote in Ireland printed yesterday… In a substantially decided vote (67% to 33%) the Irish voted in favor of the Treaty, which now goes to Poland and Czech Republic, who are the only two left to ratify the Treaty… There are some rumors going around that the Czech Republic (CR) might hold it up, causing a delay, which could deep-six the whole thing.

Speaking of the euro… The European Central Bank (ECB) meets this Thursday… Look for rates to remain unchanged…. However, recently, ECB President Trichet has been propping up the dollar with statements about dollar strength here and there… Remember, he HAS TO DO THIS! He cannot be seen banging the drum for a stronger euro… That could drop the dollar in a heartbeat… So…on Thursday this week, the markets will be listening to Trichet’s statement following the rate announcement to see if he “props up the dollar” again.

And speaking of rate announcements… The BIG ONE tonight is the Reserve Bank of Australia’s (RBA). While I think that October is too early for a rate hike, what I’m looking for is any indication that November will be the month we see the first rate hike after the two years of rate cuts around the world. I’m going out on a limb here and saying that the RBA will hike rates 25 BPS next month! So… Put that in your calendar to see if I’m bang on, or if I just plain whiffed at the pitch!

Recall that at one time it looked as though Norway’s Norges Bank would be the first to raise rates, but the RBA has edged in front now… But, it’s not that bad to be in second place as long as the Norges Bank comes through on the rate hike… Right now, it looks as though the Norges Bank will wait until December.

Rate differentials can and should go a very long way toward currency strength… It’s not the end-all, as the Japanese yen (JPY) can attest to… But, for the most part, it carries a lot of weight in currency valuation… And that’s the reason I make such a big deal out of the RBA and Norges Bank being the first central banks to raise rates… They already enjoy a rate differential to the dollar… And rate hikes will simply widen that differential.

So, when investors around the world want to find yield… They will look for countries that have rate differentials to the base rate in their country… And the wider the better!

Well, that is, as long as we’re not talking about a country that is whacked out, corrupt, politically unstable, or unable to attract foreign investment, so they hike rates up to levels that stand out like a man with a hatchet in his head!

So… Back to Australia for a moment… The Aussie dollar (AUD) really recovered nicely after the G-7 “no-statement.” I’m sure some traders are taking a flyer that the RBA would spring a surprise rate hike tonight… So, the downside risk for tomorrow is there, slightly… But today, it’s all seashells and balloons for the Aussie dollar!

Gold remained above $1,000 overnight… It sure looks to me as though the price of gold is simply forming a new base at $1,000, before moving on to higher levels… But, that’s just me… I don’t have a crystal ball, and I don’t read tealeaves! Just an opinion on what it looks like to me… Which is why I’ve changed my line… Remember, 6-9 months ago, when I would say that I thought it to be a good idea to look to buy on the dips below $900? Well, I’m changing that to look to buy on the dips below $1,000.

Not that I want to “jinx” the Indian rupee (INR), but I’ve noticed the past couple of weeks, how the rupee has been gaining versus the dollar… Inch by inch, the moves aren’t anything to shake the earth, but they are positive moves versus the dollar, nonetheless! So… Good show rupee!

You know… Over the past couple of years, you’ve got to have noticed how the once “fringe countries” like India and Brazil are the ones doing all the right things and pulling the right strings with their economies, while the US continues to walk the plank of catastrophe!

Well, after last week’s data deluge, the data cupboard takes a break today and tomorrow, coming back on Wednesday with the monthly budget statement… The budget deficit in the US has become the focal point of dollar bears… The budget deficit continues to grow, as the deficit spending continues to go on and on, like the Energizer Bunny! The rest of the week is pretty low-key with regards to data. Friday, we’ll see the latest trade deficit… So, the “twin deficits” are on display this week.

So… To recap, the Jobs Jamboree was very disappointing with job losses shooting up to 263,000 in September. G-7 did not make any statement about the currencies, so traders have taken that to mean they don’t care about how weak the dollar is… The RBA meets tonight, and I’m looking for them to raise rates next month, not tonight. And gold is back above $1,000.

The Daily Reckoning