US payrolls surprise to upside

The U.S. payrolls headline number was reported better than expected in November with the creation of 147,000 jobs, beating the consensus estimate of just 80,000. It seems economists had overestimated the effects of Hurricane Sandy on the jobs market and which in fact had limited effects albeit mostly due to the accounting treatment of data.

The unemployment rate is down to 7.7% from the last reported 7.9%, but again, the drop may be largely attributed to a shrinking labour force rather than to healthy creation of jobs. A deeper look inside the report shows a strong service-providing sector but a very shaky goods-producing sector.

The reality is that the U.S. economy is doing much better than Europe in terms of job creation, and most importantly, it is growing while Europe is still shrinking as evidenced by the latest ECB predictions.

U.S. markets opened higher today although were sagging at the time of writing and many in the street are just asking the question – “Is this the Santa rally?”. On this side of the pond we already have an answe –  “The rally already started”.

Contrary to the  base respective economic situations, European equity markets are actually doing currently performing much better than the U.S. in terms of equities. If you take a look at the table below, depicting performance for European, U.S., and Japanese indices, you can see the Christmas rally has already started in Europe and Japan.

Europe and Japan have outperformed the U.S. by a decent margin in quarter four so far. In fact, the three major U.S. indices are all down in the quarter, with the Nasdaq leading the declines with a substantial 5.1% loss – a lot of this being Apple related however. It is interesting to note the fact that QE3 seems to not have been particularly healthy for U.S. equities… Helicopter Ben and is magic powers seem to be waning! A lot of the underperformance is however likely due to the fiscal cliff which still remains a thorn in the shoe for the US stock market.

At least German equity holders look to have their best Christmas of the last five years with the DAX trading at a five year high and being up almost 28% YTD. It certainly is not a crime to sell a few slices of the cake to buy some deserved Christmas gifts!