Morning Report: Jobs report disappoints, but don’t discount the Fed 5/9/16

Markets are up small despite some bad data out of China overnight. Bonds and MBS are up small.

Jobs report data dump:

  • Payrolls + 160k
  • Unemployment rate 5%
  • Average hourly earnings + 0.3% MOM / +2.5% YOY
  • Labor force participation rate 62.8%
  • Underemployment rate 9.7%

Overall not a great report. The Labor Force Participation rate fell back, which is bad news for the economy overall. Earnings are up, which is about the only bright spot on the report. Strategists are beginning to worry about a deceleration in the economy, or even a mild recession. Tough to see how the Fed raises rates in June.

The Labor Market Conditions Index improved to -.09 from -2.1 last month. This is a meta-index of several leading and lagging indicators.

Despite the weakness in the economy, Bill Gross and Mohammed El Arian are warning investors not to discount the Fed. Their point: wage growth is the most important part of that jobs report, and they are going up. A June hike is not the most likely outcome, however it shouldn’t be ruled out either.

The Fed wants to see a bit of inflation, but the convoy system in Asia is preventing it. Like the Japanese, China is propping up unprofitable factories, which is contributing to a glut of aluminum, steel, and other industrial goods. We saw this happen in the 1930s, which triggered trade wars and exacerbated a global deflationary vortex. We are seeing a similar thing today, with the backlash against free trade, and nationalistic candidates in Europe and the US.

The biggest internet lender, Lending Club, is down big pre-open after the CEO resigned over a loan sale. Apparently the loan sale didn’t have anything to do with pricing or credit, but it did violate the company’s internal procedures. The company is currently facing trouble funding its loans in the capital markets. The stock is down close to $5 a share after trading at $19.50 just under a year ago.

This year has not been kind to the stocks of non-bank lenders / servicers – Nationstar, Ocwen, Stonegate, Walters all down badly this year.

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