Jul 7, 2012

The Job Numbers Were Bad - But Apparently Not Bad Enough

On Friday Non-Farm Payrolls for June showed an increase of 80k versus a (revised upwards) expectation of 100k. Not surprisingly the stock market sold off on the news, but eventually closed less than 1% down on the day. The US economy is growing very slowly but it is nevertheless growing. Which in some sense is a bad thing, as it means that Big Ben will probably not have an opportunity to come to the rescue with another round of Quantitative Easing.

To be sure everyone has a different opinion on the likelihood of QE3 actually materializing. One way to tease out the consensus view is to look at the price of Gold. In the past few months Gold futures might as well have been rechristened QE futures, as they mostly move to the drumbeat of investor expectation of more Fed medicine and little else.

After NFP's disappointed, Gold quickly shot up about a percent, as the market factored in higher chances of quantitative easing. However that spike quickly reversed and the metal actually closed down on the day. The market consensus clearly is that slow growth is not enough to bring QE3. We would need the economy to be in a much worse state for that to happen (and of course if it did, the stock market should only go higher with even more money chasing it).

(More WhatIf Economics posts).