The first trading week of June was unpleasant for investors as there were some unpleasant news reports. The most displeasing one was about the unemployment rate in the USA. It reached 9.1%, which means that the US economy has serious problems (as opposed to the statements about economic recovery made by the US authorities).
An “info bomb” scaring investors
According to the US-Canadian Association of Traders and Investors under , last Friday the US Department of Labor published May’s employment report, which turned out to be “negative” (the employment growth slowed down while the unemployment reached 9.1%):
· The amount of new jobs keeps growing, but not as fast as expected. In May only 54K new jobs were created (for comparison sake, in April it was 232K). Of course, most analysts hadn’t expected the same result but they had anticipated at least 160K new jobs to be created.
· Unemployment growth. The unemployment rate gained 0.1%, which nobody had expected. According to analysts, it should have declined down to 8,8 - 8,9%. Thereby, today 13,9M Americans are jobless.
· Growing unemployment claims. According to the US Department of Labor, the latest data showed 422K. According to numerous experts, a value above 400K a week cannot testify to any stable economic recovery. The value hasn’t been below the 400K line for the last 8 weeks.
· The employment rate in the private sector has been so low since June 2010.
· The manufacturing sector has seen a rapid slowdown in the growth. The values are fluctuating around the zero line, below which there is the negative zone. May’s PMI report released by the ISM declined by almost by 7pts down to 53,5pts. A value below 50 testifies to a decline in the manufacturing sector, which is known to be the most precise indicator of the current economic situation. The 7-point decline within a month has been the most significant one since 1984. It means that the US companies started saving on personnel and consequently reduced their output.
Thereby, traders got a clear indication that the US government still cannot stimulate the economic growth and reduce the unemployment. The QE2 program hasn’t still reached the goals. It happens so that it is the macroeconomic data that have influenced the markets so far.
Calm before the storm
In advance of the report published by the US Department of Labor traders expected the leading indexes to grow in value. On June 2nd 2011 at the beginning of the American trading session most investors felt optimistic. They expected the indexes to regain the positions lost during the previous trading session:
· The positive dynamics of the futures of the leading indexes was mainly conditioned by the positive data on sales volume and the slight increase in the prices on primary products, crude oil and gold. The USDL’s monitoring results were also expected to be positive.
· On June 2nd the futures of Dow Jones futures gained 15 pts (+0,12%), S&P - 1,7 pts (+0,13%), NASDAQ - 6,25 pts (+0,27%).
How did the US unemployment manage to make crude oil decline in price?
The markets instantly reacted to the info about the US unemployment rate. On June 3rd Dow Jones lost 1,1 %, S&P 500 - 1,2 %, NASDAQ - about 1.5%. It happened within 15 minutes after the unemployment report.
· In general, over the week all the 3 major indexes lost 2.3% each. Dow Jones index has been declining for the 5th week in a row. This has been the most significant regress since 2004.
· On June 3rd the WTI cured futures fell from $100/b down to $97.5/b within 20 minutes. According to some investors, the news about a possible slowdown in the pace of the US economic growth may hamper the demand for crude oil.
· The Russian stock market also reacted to the US news fairly quickly. Before the unemployment release the major Russian stocks declined only 0,3-0,5% on average. Right after the USDL’s release MICEX lost 1,7%, RTS — 1,5%, the common shares of Sberbank and VTB — 2,4 and 2,5% correspondingly, Gazprom - 2,8%; Lukoil, Rosneft and Rusgidro lost 1,8% each.
The mentioned unemployment report released by the USDL is of high importance to numerous investors around the world, especially against the background of Moody’s warning that it may downgrade the USA’s sovereign rating. A slowdown in the economic recovery will be treated as a clear indication of the US government’s inability to reduce the country’s budget deficit and huge public debt.
USD perspectives:
Let’s look at the USD index chart:
The ECB’s statement about the inflation monitoring caused a rally. However, some dealers say that the growth attracted hedge funds, which initiated massive sales. Together with those speculators who took profit they started a rapid fall of the Euro currency as the market liquidity was low and consequently the support level was easy to break below. According to the Department of studying Masterforex-V trading system , Trichet’s comments were generally positive for bulls (as expected). At the moment the US Dollar is strengthening.
Market Leader and offer you to participate in a survey. Please, visit the Academy’s forum an answer the following question:
How will the US unemployment rate change in the near future?
· It will improve
· It will deteriorate
· It will stay stable
