Payrolls in US rise more than projected, jobless rate at 5%

Payroll growth surged in December, capping the second-best year for American workers since 1999 and further evidence of a resilient job market that prompted the Federal Reserve to raise interest rates.

PHOTO: AFP

JAN 8, 20169:53 PM

[WASHINGTON] Payroll growth surged in December, capping the second-best year for American workers since 1999 and further evidence of a resilient job market that prompted the Federal Reserve to raise interest rates.

The 292,000 gain exceeded the highest forecast in a Bloomberg survey and followed a 252,000 increase in November that was stronger than previously estimated, a Labour Department report showed Friday. The median forecast in a Bloomberg survey called for a 200,000 advance. The jobless rate held at 5 per cent, and wage growth rose less than forecast from a year earlier.

Such job-market durability indicates employers were sanguine about the economy's prospects just before the recent rout in global financial markets. Fed policy makers are counting on tighter labour conditions to lead to broader increases in worker pay and inflation.

"Job growth is solid," Joshua Shapiro, chief US economist at Maria Fiorini Ramirez Inc in New York, said before the report. "The labour market will remain supportive of consumer spending. We ought to see a broader pickup in wage growth this year." The December job gains, which were probably helped by mild winter weather across much of the country, were led by temporary-help services, health care, transportation and construction.

Labour Department revisions to prior reports added a total of 50,000 jobs to payrolls in the previous two months. For all of 2015, payrolls climbed by 2.65 million after 3.1 million in 2014 for the best back-to-back years for hiring since 1998-99.

December payroll estimates of 92 economists in the Bloomberg survey ranged from gains of 135,000 to 250,000. November was initially reported as a 211,000 increase. The unemployment rate, which is derived from a separate survey of households, matched the median forecast.

With the latest jobs report, the Bureau of Labour Statistics also issued revisions for data from the survey of households dating back to 2011. Payroll figures from the survey of employers will be revised when the January data is released Feb. 5. There were no revisions to the rates in any month last year, when unemployment averaged 5.3 per cent.

While employers continue to aggressively add to headcounts, worker pay has yet to show a sustainable pickup. Average hourly earnings were unchanged from the prior month. They increased 2.5 per cent over the 12 months ended in December. The median forecast called for a 2.7 per cent year-over-year gain.

The advance, which was the biggest since October, was primarily due to an easy comparison with December 2014, when earnings fell 0.2 per cent from the previous month. This so- called base effect will probably result in some payback with the January employment report when earnings come up against a strong January 2015 comparison.

The average work week for all workers held in December at 34.5 hours.

Another caveat about the wage and hours results: The Bureau of Labour Statistics found a processing error in the data from March 2006 through February 2009 and will issue corrected figures on Feb. 5.

The participation rate, which shows the share of working- age people in the labour force, increased to 62.6 per cent from 62.5 per cent.

Employment over the final three months of 2015 increased 284,000 on average, the most since January 2015.

Hiring gains last month were broad, with construction adding 45,000 jobs, health-care providers taking on 52,600 and temporary help services boosting headcounts by 34,400. Factories even added the most jobs - 8,000 - in five months.

Federal Reserve Minutes of the Fed's December meeting, when policy makers boosted their target rate for federal funds, showed participants acknowledged the improvement in labour market conditions. Many judged it as "substantial." "Members agreed that a range of recent labour market indicators, including ongoing job gains and declining unemployment, showed further improvement and confirmed that underutilization of labour resources had diminished appreciably since early this year," according to the minutes, released on Wednesday. At the same time, Fed officials said there was room for slack to be absorbed and signaled further hikes in interest rates would occur gradually.

On Thursday, the Standard & Poor's 500 Index capped its worst-ever four-day start to a year as turmoil in China spread around the world. Selling in global equities began in China, where shares fell 7 per cent after the central bank weakened the yuan an eighth day. Crude settled at a 12-year low, and copper dipped below $2 for the first time since 2009.

BLOOMBERG

    
 

China says will further liberalise interest rates: PBOC

China's central bank said it would further liberalise interest rates, according to a statement posted on the People's Bank of China website on Friday. 

PHOTO: REUTERS

JAN 8, 20167:44 PM

[BEIJING] China's central bank said it would further liberalise interest rates, according to a statement posted on the People's Bank of China website on Friday.

The central bank also said it would make the yuan more international, keep the currency basically stable, further improve the currency formation mechanism and deepen reforms of the foreign exchange management system and financial institutions.

The central bank will use medium-term loans, and pledged supplementary loans and credit policies to support key areas of the economy.

The central bank also said it would maintain prudent monetary policy and flexibly use monetary policy tools to keep adequate liquidity in the banking system.

REUTERS

Chinese economy stable: ADB president

China's economy, as well as Asia's, are unlikely to slow down sharply this year despite Chinese stock turmoil that has rocked global financial markets, the Asian Development Bank president said Friday. 

PHOTO: ST

JAN 8, 20166:28 PM

[MANILA] China's economy, as well as Asia's, are unlikely to slow down sharply this year despite Chinese stock turmoil that has rocked global financial markets, the Asian Development Bank president said Friday.

Sharp selloffs in the Chinese stock markets this week have renewed fears about the fate of the world's second-largest economy and the knock-on effects across the globe.

"I don't have a very pessimistic view about China," ADB president Takehiko Nakao told reporters in Manila, adding the bank was maintaining its 6.7 per cent economic growth forecast this year for China.

This would only be slightly lower than its 6.9 per cent growth projection for the country in 2015.

Developing Asia as a whole, which has been highly dependent on China, should grow 6.0 per cent, or up from 5.8 per cent forecast for 2015, Mr Nakao said.

Mr Nakao said China was successfully undertaking important reforms, such as making its economy less reliant on investment and more on domestic consumer demand.

He also cited ongoing reform of state-owned enterprises, expansion of the social security system and reduction of disparities between Chinese cities and rural areas.

"Also there is room for stimulus... because its fiscal position is strong and inflation is subdued," he said.

Mr Nakao said that, despite the latest turmoil on the Shanghai bourse, the index was still about 1,000 points above its end-2013 level.

Mr Nakao also said he did not believe the yuan currency's depreciation was a deliberate attempt by the Chinese authorities to weaken it to boost exports.

"This depreciation is not because of artificial intervention to lower the renminbi," he said, using another term for the yuan.

"It is in a sense the other way. They don't intervene, that's why there is a marked depreciation." Mr Nakao said a rapid depreciation could trigger a reciprocal move by other countries.

"Already some countries have depreciations in currencies. But I don't think this is a currency war," he said.

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ADB president dismisses fears of a possible currency war

The US-backed Asian Development Bank will cooperate with a major new Chinese-led multilateral lending institution and they plan to co-finance projects this year, the ADB's president said Friday. 

PHOTO: BLOOMBERG

JAN 8, 20164:09 PM

[MANILA] Asia isn't facing a currency war triggered by China, the president of the Asian Development Bank (ADB) said on Friday.

Takehiko Nakao said the recent decline in the yuan reflected the market and was not due to "artificial intervention". "They don't intervene, that's why there's more depreciation," he told foreign correspondents in Manila.

Mr Nakao also ruled out a significant slowdown in China, saying the world's second largest economy's strong fiscal position and subdued inflation give it room to stimulate growth.

A sustained depreciation in the yuan puts pressure on other Asian countries to weaken their currencies to stay competitive with China's export machine. "If there is very rapid depreciation, it might cause some volatility in the market and other countries might follow the case and already some countries have a depreciation of currencies. But I don't think this is a currency war," Mr Nakao said.

Mr Nakao reaffirmed ADB's 6.9 per cent growth forecast for China in 2015, and 6.7 per cent this year. "There is a room for stimulus if growth is coming down because fiscal position is strong and the inflation is subdued,"he said.

Mr Nakao reiterated the ADB would cooperate with Beijing-backed Asian Infrastructure Investment Bank (AIIB), which is seen as a rival to Japan-led ADB and U.S.-led World Bank.

Mr Nakao, a former Japanese vice finance minister for International affairs, said ADB and AIIB may announce by the middle of this year some projects they will co-finance in areas such as transport, roads, renewable energy and water.

All major US allies - Australia, Britain, Germany, Italy, the Philippines and South Korea - have joined the bank.

REUTERS

    
 

Why China's stock market and currency policies are bound to fail

• Greg McKenna, Business Insider Australia
 

• 15h
• 1,624

Getty Images

China is trying to turn back the clock. 

Having unleashed the forces of the market to build a bubble in stocks in 2015 to help aid China’s economic transition, the communist nation is now uncomfortable with the fallout from the collapse in prices and the impact that will have on retail investors and the economy. 

Likewise with the yuan, China is trying to keep a lid on both the pace of the currency’s depreciation and the capital flows that go with that. 

Last night we learnt just what a huge impact this is having on China’s massive hoard of foreign exchange reserves.

During December reserves dropped by $108 billion to $3.33 trillion as the central bank sells US dollars and buys Yuan to slow the depreciation of its currency. 

The problem with the stock market and currency policy China is trying to follow is that history, and fractal finance theory, tell us China will eventually give in on the currency and widen change the triggers on its stock market circuit breakers. 

History says Mr Forex Market will win 

Misunderstanding the apocryphal story of King Canute holding back the tide, Chinese policy makers are seeking to do something developed economy central banks and governments gave up on during 1970s and ’80s.

After US president Richard Nixon closed the gold window in 1971 governments around the world have increasingly stepped back from trying to manipulate currency and other financial markets. 

The reason Nixon, and subsequent governments including Australia which floated the dollar in December 1983, stepped back from markets is that the costs of trying to hold a line against the market, and capital flows, becomes simply too expensive and economically disruptive for the country to bear.

As the Australian experience shows allowing the currency a free float lets the relative moves of the Australian dollar either add (via a depreciation) or subtract (via an appreciation) from economic growth as the economy needs. 

The secondary impact is that a free float also frees the central bank up to undertake monetary policy aimed exclusively at the countries economic growth rate free from the artificial constraints of trying to support an overvalued currency. 

Certainly China should be letting its currency float. And in time it most likely will. 

But don’t forget China only joined the world trade organisation in 2001. It’s become a huge economy since then but neither its institutions, policy tools or majority of the economy has evolved at a pace in keeping with China’s importance to the global economy or markets.

Business Insider Australia

The inventor of market circuit breakers says China got it wrong

Nicholas Brady was the US treasury secretary from 1988 till early 1993. He’s the guy who invented the so-called Brady bonds to help Latin America get out from under its heavy debts in the 80s. 

He’s also the guy who set up the circuit breakers on US stock markets in the wake of the 1987 stock market crash. 

Brady told Bloomberg overnight that China is “on the wrong track” with its current circuit breakers. 

Mercifully it seems the message was received because Chinese authorities have abandoned the 7% circuit breaker rule for the Shanghai stock market.

It’s not that Brady thinks circuit breakers are a bad idea, the S&P 500 has circuit breakers to this day at 7%, 13% and 20%. Rather Brady said China needs “a set of circuit breakers that appropriately reflects their market.” 

Fractal finance explains why the currency policy and the current circuit breakers are failing

In his book The (Mis)behaviour Of Markets the father of fractal geometry, and its offshoot fractal finance, Benoit Mandelbrot (and co-author Richard L. Hudson), neatly explained why China’s policies are struggling to work against the market. 

It’s simply a function of how markets work, Mandelbrot wrote. 

In the chapter devoted to his “Ten Heresies of Finance”, Mandelbrot said “a favourite pastime of cranks and academics is devising the financial equivalent of a perpetual motion machine.” 

Mandelbrot means “continuity is a fundamental assumption of conventional finance.” It underlies the teachings in finance of Nobel Laureates Harry Markowitz, Willaim Sharpe and the all-important Black-Scholes options pricing model. These approaches, which underpin financial theory of markets, “all assume continuous change from one price to the next.” 

Clealry this theory also underlies the way China is trying to slowly walk the yuan down against the US dollar and manage falls in its stock market. 

The trouble is that the assumption of continuity is “false and the math is wrong,” Mandelbrot says. 

Almost any experienced trader on any desk in any dealing room, or central bank, would agree with this statement. 

Here Mandelbrot says [our emphasis added]:

 I contend the capacity for jumps, or discontinuity, is the principle conceptual difference between economics and classical physics… in a financial market, the news that impels an investor can be minor or major. His buying power can be insignificant, or market moving. His decision can be based on an instantaneous change of heart, from bull to bear and back again. The result is a far-wider distribution of price changes: not just price movements but price dislocations.

In summary Mandelbrot is saying “prices often leap, not glide.”

And that’s the problem for China. It is trying to glide prices lower for the yuan and stocks when the market wants to leap.

Read the original article on Business Insider Australia. Copyright 2016.

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More: China Markets and Economy China Stock Market Hang Seng Yuan 

Apple shares are getting whacked again

• Myles Udland
 
•  

• Jan. 7, 2016, 7:40 AM
• 1,960

Stocks around the world are getting slammed on Thursday and so is the world's biggest company. 

Shares of Apple were down as much as 2.7% in pre-market trade on Thursday to trade below $98 a share.

On Wednesday shares of the iPhone maker fell below $100 for the first time since August.

That late-August drop below $100, however, came on the morning of the August 24 "flash crash" that sent US stocks into utter chaos for a few hours with the Dow falling as many as 1,000 points, among other wild moves in markets. Shares of Apple traded as low as $92 that morning. 

The stock, however, closed north of $100 following the August 24 drop and so many could be inclined to almost back out those previous trades as something of a fluke. On this basis, the stock is now at closer to an 18-month low with Apple having not traded near $100 on a split-adjusted basis since October 2014.

As we noted on Wednesday, Apple is likely facing a challenging year in 2016 as iPhone sales appear poised to potentially go negative on a year-on-year basis, something that has never happened in the history of the product.

Additionally, investors are now going into at least the third straight asking what the company's "next iPhone" — or blockbuster product that changes the world — is going to be. 

So far, there's only one iPhone. 

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More: Apple

The world's most valuable company could be going public

• Myles Udland
 
•  

• 24h
• 28,155

Saudi Arabia's state-owned oil behemoth could be coming to the public markets.

According to a report in The Economist, Saudi Aramco, the state-owned company that is the world's largest oil producer, could soon be listed on a public exchange. Muhammad bin Salman, Saudi Arabia's deputy crown prince, told The Economist a decision by the kingdom regarding an offering of Aramco would happen in the next few months.

Saudi officials say Saudi Aramco is worth "trillions of dollars," which would make it by far the largest company in the world.

Salman told The Economist: "Personally, I'm enthusiastic about this step. I believe it is in the interest of the Saudi market, and it is in the interest of Aramco."

The Economist's report added that options being considered for an Aramco public float included "listing some of its petrochemical and other 'downstream' firms, to selling shares in the parent company, which includes the core business of producing crude."

This potential market debut for the company comes amid a continued slide in the price of crude oil.

Crude hit a 14-year low on Thursday, with West Texas Intermediate crude, the US benchmark, falling as low as $32.10 a barrel. Brent crude, the international benchmark, ticked as low as $32.17.

FRED

Saudi Arabia — which gets a large chunk of its government revenue through oil sales — is expected to run a huge deficit in 2016 because of oil's declining value.

US shale-oil production has been singled out as the main culprit for the collapse in oil prices over the past 18 months.

During this period Saudi Arabia and OPEC, the 13-member oil cartel of which Saudi Arabia is seen as the de facto leader, have declined to cut oil production as the cartel works to defend market share.

But a move to public markets would effectively be an admission by Saudi Arabia that this revenue, and the efforts to defend the country's standing in the oil markets, are not enough.

Read the full report at The Economist's website here »

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German industrial production hit a speed bump

• Ben Moshinsky
 

• 9h
• 225

REUTERS/Michaela RehleGerman auto workers on strike in 2008.

German industrial production dropped 0.3% in November, weaker than analysts were expecting.

Economists estimated a 0.5% rise, following on from Germany's 0.5% increase in industrial production in October.

The poor November figure pushed year-on-year production down to 0.1% from 0.4% a month earlier.

It wasn't all bad news for Germany though. Exports rose 0.4% in November, up 7.7% year-on-year, according to statistics published on Friday.

Here's the chart:

Statistisches Bundesamt

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Here's your complete guide to the jobs report

• Bob Bryan
 
•  

• 5h
• 975

Chip Somodevilla/Getty Images

At 8:30 a.m. ET, the Bureau of Labor Statistics will release the December jobs report.

Notably, this will be the first jobs report since the Federal Reserve decided to raise interest rates off zero in mid-December.

Via Bloomberg, here's what economists expect for the release:

• Nonfarm payrolls: +200,000
• Unemployment rate: 5%
• Average hourly earnings month-on-month: +0.2%
• Average hourly earnings year-on-year: 2.7%
• Average weekly hours worked: 34.5

Affirmation for the Fed

In its monumental decision to lift interest rates in December, Janet Yellen cited the strength of the labor market as one of the most significant factors playing into that decision.

Now with rates finally off the zero bound, a continuation of the recent trend in labor market improvements can help affirm that decision and lay the groundwork for future rate increases.

"Capping a banner year for hiring, the Bureau of Labor Statistics’ update on the employment situation in December is expected to support the Federal Open Market Committee’s decision to initiate the monetary policy normalization process at last month’s meeting," said Societe Generale senior economist Brian Jones in a note to clients.

Jones said this also paves the way for further tightening at meetings in 2016.

Noted Fed pessimist Lindsay Piegza, chief economist at Stifel, said she expects a "moderate" number around 200,000 to keep the Fed on the path for more hikes, for better or worse.

"An unimpressive gain, 'moderate' is now the name of the game," said Piegza in a note Thursday.

"Moderate growth and moderate employment gains will no doubt be good enough to continue to fuel the Fed’s arguably overly optimistic expectations for further improvement down the line, and likely keep us on track for three or so rate increases in 2016."

Approaching 'full employment' and wage growth

One of the Fed's two mandates is ensuring the economy reach "full employment," or the unemployment rat at which wage growth begins to accelerate. The precise point at which we tip into "full employment," however, remains murky.

"We estimate that monthly job gains over roughly 100,000 are sufficient to keep eating into any residual slack in the labor market," wrote Credit Suisse's Chief Economist James Sweeney. "At some point this year, as we edge closer to that nebulous state of 'full employment,' we'd expect these monthly payroll gains to start moderating."

Jones at Societe Generale also thinks the time for full employment is nigh.

"Together, our projections would pare the unemployment rate by one tick to 4.9% (4.904% unrounded) – the lowest level since February 2008 and matching the level monetary policymakers generally associate with full employment," he wrote.

This in turn, should force wages for workers up.

For many economists, wage growth is the last piece of the labor market puzzle.

JeffriesAverage hourly earnings (AHE) vs. the U6 unemployment rate.

Another chapter in the story of manufacturing decline

WWells Fargo Securities

hile most economists expect a relatively solid report, the continued collapse of the US manufacturing sector is also likely to show up in Friday's release.

According to Lew Alexander at Nomura, the recent employment indicators for the sector have been underwhelming at best.

"Employment indicators from regional manufacturing surveys point to further declines or very modest job gains in the manufacturing sector," he wrote.

"The Empire State employment indicator in December declined sharply to -16.2. The employment index from the December ISM national manufacturing report dropped below 50 for the second time in three months."

Alexander estimates that employment for the sector decreased by 3,000 jobs in December.

SEE ALSO: Here's what happened the last 10 times the stock market disintegrated into a bear market

NOW WATCH: Why Chinese executives keep disappearing

More: Jobs Report Labor Market Federal Reserve Wages

You have to go back to the 1930s to find a worse commodities rout

• Ben Moshinsky
 

• Jan. 7, 2016, 5:15 AM
• 1,244

Investors in commodities have been on a huge losing streak in the past few years. 

Jodie Gunzberg, S&P Dow Jones Indices global head of commodities, said in a note that "2015 will go down in history as one of the worst years ever for commodities."

Concerns over the health of the Chinese economy, which is a main demand-driver for commodities, and oil prices falling to record lows helped accelerate the rout last year.

According to Bank of America Merrill Lynch, the current commodities rout is the worst since the Great Depression hit in the 1930s.

Annualised returns for commodities in the past 10 years are -5.1%. It's the first time commodities have lost money over a 10 year period since the 1960s.

Here's the chart:

Bank of America Merrill Lynch

And here's how other assets measure up for the past 10 years:

Bank of America Merrill Lynch

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More: Commodities China Markets Great Depression