Friday, June 1, 2012

Another Disappointment - May Employment Report Missed Badly

BLS released May '12 state of employment report and it appears that our initial thoughts regarding net change in NFP were not accurate, as it came in significantly below our estimate and the Street's. However, our simple trading strategies appear to be working. We must note that the March and April figures were revised down significantly, which obviously impact nearly all NFP projection models.

The NFP net change print of 69K was less than our 152K estimate and the 150K consensus. The unemployment rate edged up to 8.2% from April's 8.1% and above the Street's 8.1% estimate. The broader U-6 unemployment rate was 14.8%, an increase from April's 14.5%.

Net change in NFP for March and April were revised down by 11K and 38K, respectively.

The market has gotten off to a good start, S&P 500 down 1.6% and VIX up 6.0%+, when you consider our suggested strategies yesterday around 11am (ET). We note that the Fed's Rosengren did whisper hints that Operation Twist could be extended beyond June; in other words, QE3 is becoming more likely. This is also shown with GLD being up 2.0%+. For the time being, the market is not necessarily embracing such psychological support provided by the Fed. It appears that the market will be twisting the Fed's arm a bit more to make sure the extension of Operation Twist is set in stone.

We had been in a meeting all morning and that's why we did not post our thoughts on the employment figures earlier. We will post a more detailed analysis of the BLS employment report by noon today. We will also discuss the manufacturing ISM report for May which is due out in about 9 minutes.

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