Strong payrolls report looks to nudge Obama over the finish line next week

Barack Obama is probably going into this weekend as happy and optimistic as he could be given the double boost that Hurricane Sandy and today’s Non Farm payroll figures have given his election hopes. The U.S. Department of Labour said payrolls were up 171,000 in October, a number that beat even the most optimistic expectation. Payrolls numbers for September were also revised higher. Gold was severely hit once again as the likelihood of continued monetary easing for a prolonged period in the US diminishes with seemingly every new economic report.

According to the report, payrolls were up 171,000 – above the mean expectation of 125,000 and also above September’s revised 148,000 number (previously 114,000). Gains were seen across every sector, being especially strong in retail. Manufacturing also finally showed some movement with a gain of 13,000 jobs and so reversing the losses observed in this area in September. Nevertheless the manufacturing sector has been weak this year in terms of job creation. Government contribution was negative, as has been the tendency right throughout the year, with the exception of last month.

The same report also produced an increase in the unemployment rate however from 7.8% to 7.9% as more than 500,000 persons returned to the workforce. Although rising 0.1%, we may interpret this number as being positive as the return to the workforce may mean people are more confident about getting a job. In fact this is confirmed by the latest Michigan consumer sentiment polls.

Although the growth in the job market has been frustratingly slow, it is pretty apparent now that the U.S. economy is recovering particularly well given the international context. After losing an average of 300,000 jobs a month in 2008 and 421,000 in 2009, at the peak of the financial crisis, the U.S economy has been creating a little more than 150,000 jobs per month throughout 2011 and 2012 as the table below shows (in ‘000’s).

The main equity indices reacted positively but, at the time of writing most of the gains reversed later on as profit taking set in and as investors also condense the largely disappointing corporate earnings reports this week. Gold was one of the heaviest losers this week wit the precious metal trading at $1,705 just before the announcement and is now trading at $1,683 – a decent loss of $22. On October 17, wee xpressed our concerns about gold (http://www.spreadbetmagazine.com/blog/golds-prospects-fading-fast.html).

As economic reports in the U.S. show improvements, investors are likely to continue selling gold as they believe the FED may end or reduce quantitative easing somewhat earlier than original expectations. Gold is thus losing its appeal and absent a shakedown in the Eurozone is likely to continue this downtrend for some more time – against the desires of Messrs Paulson and Soros!

And so it looks like Obama will edge over the finish line next Tuesday in the Presidential race – an event which is likely to be positive for equity markets and set the scene for a continuation end of year rallywith bonds for continued selling and also gold. 

Editor