Job growth only a partial restoration in a catastrophe, not a signal of a healthy economy
|Outlook:
If the pandemic is driving the economy, it's not doing much of a job. The surge in cases in the US, plus the developing catastrophe in Latin America, was disregarded last week in favor of seemingly "good" jobs reports. The US purported added 4.8 million jobs in June, far more than the 3 million expected and far better than the 2.7 million (revised) in May.
Wall Street in Advance Lynne is "furious" at talk of jobs being added when the correct word is "restored." It's not job growth, a signal of a healthy economy, but partial restoration of a catastrophic loss. April and March had a loss of 22.2 million jobs. The June restoration is only about 20%. In addition, the jobs data is woefully inadequate. Unemployment benefit claims from March are still being processed. As noted last week, the "growth" in the ADP leisure and hospitality sector of nearly one million is not credible, and in many cases was reversed in just the last week as some states restored lockdown. Like giant California, which would be the 4th largest economy in the world if it were a country.
Bottom line, it's simply ridiculous to consider the economy is actually going upward when all it has done is stop falling. We reluctantly came to respect the stock market ignoring reality-checking, but at some point the chickens must come home to roost.
Or maybe there is something in the pandemic data that justifies "less-bad" equals "good." Bloomberg, for example, says recent days show an increase in cases lower than the 7-day average. Okay, what's that? A rise by 1.5% over the 3-day holiday weekend vs. the 1.9% average over the previous 5 days. Gimme a break. Talk about clutching at straws. Something that might be relevant and of more lasting interest is the mortality rate, which is indeed falling in the US from 5-7% in April to more like 1-3% most recently. But mortality rates are tricky, as Johns Hopkins data shows. It depends on measurement of cases per 100,000 of population or per 100,000 proved cases, and both of those base numbers are highly questionable..
Lousy and badly understood data is partly behind the unreasonable optimism of stock markets, but less acceptable is optimism about vaccines. Headlines say live trials are beginning and drug companies are searching for subjects, but fail to note that a proper trial lasts six months. No matter which of these metrics you choose—average cases, mortalities, vaccines—the news is not, in fact, good.
We suspect the bond and currency markets are smarter than the equity guys. That offsets exist and are serious might be what is behind the uneven performance of the dollar. We get one point of view that is partially offset by data from a different direction, resulting in minor wobbles around some arbitrary central point. This is how we see the dollar/yen, for example. If what we have at the start of this week is risk-off, should the yen be rising or falling? As it happens, it's rising since about midnight.
Sterling is another case of pushme-pullyou. As EU negotiator Barnier said of last week's trade talks, there are "serious divergences." And for all we know, despite being coy, BoE Gov Bailey may be contemplating negative rates. But then there is the offset of new measures and/or a cut in VAT. As for the AUD, it opened higher on a gap, telling us what the market thinks the Reserve Bank is going to say and do. But it's counterpart, the CAD, while fractionally stronger, is not surpassing the previous highs. Go figure.
This uneven performance means two things—first, a change is coming so that perception of the dollar comes down more broadly on one side or the other—and most are betting on the weaker-dollar side but hedging like crazy. And second, shoot fort the crosses, and the weirder, the better.
Political Tidbit: The Economist magazine is publishing a daily update on the outlook for the US presidential election, based on economic modelling and polling Today it shows Biden has a 98% probability of winning more votes and 90% chance of winning the electoral college. Trump can win the electoral college, but it would take winning specific states that are uncertain right now. It's a splendid effort but lacking, perhaps, some of the nuance an American old-hand would bring. Ohio, for example, is considered up in the air, along with N. Carolina and Georgia, and Florida is seen as leaning Dem. As goes Ohio, goes the election. The Economist, along with many other commentators, notes that Biden is not disliked as Clinton was disliked, and that changes quite a lot.
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