Updates, follow-ups and other stuff 4

Weak Jobs data fails to dent momentum - The slowdown in the U.S economy finally showed up in the payroll data with non-farm payrolls increasing just 88,000 in April ( Economists had estimated a figure of 100,000) and the unemployment rate rising slightly to 4.5%. A closer look at the detail of the report reveals an even greater underlying weakness than the headline number suggests.

* The April number is the weakest in 29 months and has averaged 129,000 this year opposed to 225,000 at the same time last year.
* In the separate household survey, employment plunged by 468,000, the most since November 2002.
* The unemployment rate rose to 4.5% from 4.4%, but the increase would have been larger except 392,000 potential workers dropped out of the labor force altogether, the biggest decline in the labor force in nearly four years.
* The average workweek declined, and total hours worked in the economy dropped by 0.4%.
* Average wage growth was tepid, rising just 4 cents to $17.21, a 0.2% gain. Wages are up 3.7% in the past year, well off of the peak of 4.3%.

But that was not enough to stifle the market's enthusiasm rising for the 23rd time out of the last 26 sessions (I read somewhere this hasn't happened since 1929) on the back rumored M&A activity between Microsoft and Yahoo, a suspected bid for Reuters and talk of a private equity bid for BHP Billiton. A question no-one seems to ask is, what does is all this activity or at least the rumor of activity actually create? Sorry silly question to ask in a bullmarket.

US 1Q07 Earnings- Despite some weak economic numbers in April it must be acknowledged that 1Q07 earnings have been surprisingly robust. With three-quarters of S&P500 stocks having reported the median growth rate is 10.1% whilst for the broader S&P 1500 (S&P 500, S&P Midcap 400 and S&P Smallcap 600), median growth is running at a 9.5%. If the current trend continues we may yet get another quarter of double digit growth. Analysts had predicted growth of 3-4% which always seemed overly pessimistic however it might just be that they were a quarter too early. With retailers yet to report it will be interesting to see their numbers and commentary on the effect that higher oil prices have had.

RBA on hold indefinitely, go the yen! - The RBA kept interest rates on hold and considering the relatively benign economic data over the last two weeks they didn't have much choice. They also revised down inflation expectations for 2007 smack bang in the middle of their preferred range of 2-3% at 2.5%. However looking to 2008 & 2009 the RBA expects inflation to pick-up again closer to 3%. I don't share the RBA's optimism, a US led slowdown is only just beginning and will filter through to the Australian economy and financial markets in 2008, but hey, what do I know?

Quote of the week - undoubtedly goes to Mike Whitney of counterpunch for this gem on the state of the US stockmarket:

The Dow is like a drunk atop a 13,000 ft cliff; inebriated on the Fed's cheap "low-interest" liquor. One wrong step and he'll plunge headlong into the ether.

You can read the full, very informative article here