Equity Markets Rally on Central Bank News, Stronger Employment Data
- The ADP Employment Report for November showed an increase of 206,000 private sector jobs.
- The Federal Reserve, and five other central banks, issued a statement outlining liquidity swaps.
- New Home Sales for November remained in the basement, increasing slightly to a 307,000 unit pace.
- The Case-Shiller Home Price Index for September showed ongoing declines in most major metro areas.
The ADP payroll survey for November showed a stronger gain of 206,000 private-sector payroll jobs for the month. Also, their October number was revised up by 20,000 to a level of 130,000 jobs. Small businesses (less than 50 employees) added the bulk of the new jobs in November, gaining 110,000 jobs. The manufacturing sector added 7,000 jobs in November according to ADP. The stronger-than-expected jobs gains in November are consistent with a moderate improving trend in initial claims for unemployment insurance and a moderately increasing trend in the rate of hiring. One caveat to note is that in six of the past seven years the November ADP report has shown an upward seasonal bias. If we adjust downward about 65,000 jobs for seasonal bias and then subtract another 27,000 government workers (the average monthly loss so far in 2011), then we come up with a guesstimate of about 114,000 payroll jobs for the official BLS estimate, due out Friday morning.
This morning the Federal Reserve issued a press release outlining coordinated dollar swap arrangements with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank. Beginning on December 5, pricing for temporary dollar swaps will be reduced by 50 basis points. Also, the six banks have established bilateral swap arrangements that will allow for additional liquidity in each jurisdiction within their currency areas. This is designed to be a preemptive move to reduce pressures emanating from a deteriorating situation in the Euro-zone. The Federal Reserve statement said that U.S. financial institutions currently do not face difficulty obtaining short-term funding. The recent batch of U.S. housing data offers no signs of improvement to residential real estate conditions. New home sales for November increased slightly to a 307,000 unit annual rate, still in the range of minimal activity. The Case-Shiller 20-City Composite House Price Index for September dipped by 0.6 percent. Only five cities – Cleveland, Dallas, New York, Portland and Washington – showed improvement in September. Over the prior year the index is down 3.6 percent.
Market Reaction: U.S. stock markets opened with strong gains. Treasury yields are up. WTI crude is up to $101.58/barrel. The dollar is down against the euro and the yen.