The Economy May Be Much Hotter Than Yellen Says

Yesterday, Fed Chairwoman Janet Yellen suggested that conditions were not quite right for the U.S. central bank to consider another interest rate rise very soon.

Today, the private jobs data firm, ADP, said that 200,000 new positions were added in the non-governmental sector in March.

Mark Zandi, chief economist of Moody’s Analytics (a participant in the employment surveys with ADP), called the March reading consistent with average monthly job growth of the past four years. “All indications are that the job machine will remain in high gear,” he said. He said job growth was on an “amazing streak.”

Zandi also said there is a growing chasm between the positive message in the jobs numbers and weak economic growth reflected in GDP and other readings.

“Bottom line, if you are trying to understand how this economy is doing, I would not pay attention to the [gross domestic product] numbers. I think they’re misrepresenting the strength of the economy,” Zandi told reporters on a conference call. "I would pay attention to the job numbers. We can count jobs."

"I think there's a lot of GDP there and productivity that’s not being picked up," Zandi said. “This economy is on very solid ground and performing well,” he said. He pointed to tech developments and an unusually high level of investment in that sector, purchasing via social media platforms as well as “traditional” on-line retailers.

Now, oh, now, if only we had some serious infrastructure ramp up, the U.S. economy would be on fire. White-hot fire. Calling both political parties!

Crude prices slumped but have since recovered in mid-afternoon trading. At 3PM, West Texas is essentially unchanged and Brent North Sea is up about 0.30%. Oil was weak despite a weaker U.S. dollar, mostly on news of another unexpected rise in inventory. We think that the official production numbers are showing a gap with the relentless rise in inventories globally.

The greenback faded a bit after yesterday’s Yellen comments, reflecting concern that interest rates may be staying put for a while. The trade against the euro was a reflection of profit making, rather than any real loss of faith in the dollar. A very small yen uptick shows that it is not haven demand driving currencies. The yen was up against the buck only about 0.20% on the day.

Gold prices agreed with the risk-on nature of the day, falling 1.2% total. The weaker dollar helped fend off an even more serious downturn. The rest of the precious metals complex was dragged down by gold, leaving palladium the most damaged. It was off 2.25%.

More risk-on evidence: the 10-year bond yield rose a bit, pushing face price down and therefore theoretically drawing in fresh interest from the big financial institutions.

Equities around the world were up except for Tokyo’s Nikkei. Shanghai rocketed up 2.76%, although we’re guessing there will be an adjustment to the Yellen statement as there has been in Europe and the U.S.

The U.S. indexes were strong today but not as impressively as overseas. It seems as if the markets in New York have stock prices just about right on the day. Not too hot, not too cold.

Wishing you as always, good trading,