My entire trading career, I’ve been fascinated with the market’s fixation on the payrolls number. It’s a backwards looking number with significant revisions and many underlying moving parts. It tells us little about forward looking growth. Especially in the world of endless policy intervention, I usually don’t know whether a strong number is immediately positive or negative for stocks. But since the majority of the crowd watches the number, we all watch the number.
Overnight price action was quiet overall, with Asia and Europe both slightly lower, and commodities showing significant weakness, as gold broke 1600 and oil is down another 1.5%. Most importantly, Italian and Spanish sovereign yields are rising again, with Italian 10 year yields at the 6% level, and Spanish 10 year yields close to 7%. The Euro is below its pre-summit lows. With no immediate summit plans, and the ECB announcement just passed, things could get ugly quite quickly in the periphery again. European banks (Sx7E) are down 5% from their highs on Tuesday.
But Europe aside, markets seem fixated on central banks as white knights. I’ve expressed my previous skepticism, but Mark Dow had a great blog post yesterday that does an even better job articulating my own concerns. Economic growth is not manufactured or engineered. Central banks across the world have limited tools, and gold and silver’s inability to sustain a rally is indicating concern in the market that their recent actions will have a limited impact. The market reaction to today’s payrolls number will be a good gauge to measure the strength of the market’s belief in central bank power.