US Part-Time Employment Soars

Daily Analysis - 11/05/2015

Latest Labor Data Shows Full-Time Job Losses Mounting

Although the headline nonfarm payroll gains and unemployment number were received positively by stocks, the underlying reality tells a much different story regarding the labor market. Labor force participation continues to crumble, helping drive the unemployment rate lower just as the economy continues to create more part-time employment positions versus structural full-time employment.

US Labor Force Transition Continues

Although Friday’s jobs report fell short of expectations, markets seemed unfazed despite the labor market undergoing a dramatic evolution from full-time employment to part-time employment. Aside from the concerning revision lower in the previous month’s nonfarm payroll figures to 85,000 from 126,000 was the revelation that labor force participation hit the lowest levels since 1977 with over 93 million Americans not working. The pace of full-time jobs lost is also accelerating with the latest payrolls number managing to stay in positive territory after over 400,000 part-time jobs were added at the expense of 200,000 full-time jobs erased in April. The average age of the labor force also continues to rise as workers postpone retirement in light of the troublesome outlook. Stocks responded positively to the jobs data with the S&P 500 gaining 1.35% while the dollar continued to weaken.

China Drops Rates Again

In the third such cut since November, China moved to drop the key lending rate by another 0.25% to 5.10% with the deposit rate falling to 2.25%. This comes on the heels of the latest adjustment downwards to bank reserve ratio requirements as expectations rise that the government will shortly introduce fiscal stimulus measures to accompany the monetary stimulus measures currently being implemented. The immediate reaction in stocks was positive with the Shanghai Composite rallying 3.04% overnight. The latest moves come at a critical time for policymakers as the Chinese economy is struggling under the weight of persistent producer price deflation and slowing exports. Unable to weaken the Yuan directly to achieve their goals due to interest in becoming a currency added to the IMF special drawing rights, more easing of monetary policy is likely to achieve similar goals in the near future.

Rig Count Decline Slows

Data last week showed that the after 22-straight weeks of declining drill rigs in the United States, the pace of decline seems to be decelerating with the smallest decline since December, totaling 11 rigs. Bullish bets on crude oil continue to rise, signaling that the turning point for the latest rebound in prices might be in store considering that momentum chasing in commodities has become hugely popular, with prices overshooting in each direction relative to fundamentals in the market. After last week’s tremendous 3.900 million drawdown in inventories, the stage might be set for a change in trend as the overreaction in prices corrects downwards. Nevertheless, global oil inventories remain at 80-year highs and higher prices might make it attractive for certain producers to revive operations at projects with higher breakeven costs, adding to potential oversupply woes.

EURCHF Head & Shoulders Bearish Technical Pattern

With Greece continuing to top the European agenda as officials race to find a solution, top leaders see no imminent solution ahead today, raising the specter of a pending cash crunch for Greece. Reports of the IMF working on contingency plans sent the Euro lower against peers at the outset of the weekly reopening, highlighting that the very real risk of exit remains on the table. The CHF safety bid is back on with traders selling EURCHF in an effort to protect against a potential default despite the SNB’s efforts to weaken the Franc. The head & shoulders bearish pattern setting up has a downward bias with the next key support level 1.0309 as the right shoulder of the formation is constructed. Short positions are ideally initiated above support with any break of resistance at 1.0425 signaling a possible reversal targeting secondary resistance at 1.0522.