Friday’s eagerly anticipated US jobs report — for some reason the world’s most tradable data release — didn’t disappoint the bulls. According to the Bureau of Labour Statistics, the US economy added 288,000 jobs in April, far greater than expectations of a 218,000 increase. The unemployment rate dropped from 6.7% to 6.3%. Good news!
It didn’t matter that nearly one million people dropped out of the labour force, which was the driving force behind the lower unemployment figure. Nor did it matter that average hourly earnings rose 1.9%, below expectations of 2.1% growth (suggesting that the jobs growth is lower quality).
No one really cares about drilling down on the data. The headline said the economy added 288,000 jobs and media outlets duly reported it. Therefore, that’s what everyone believes.
The market liked the (headline) number. At the open, stocks rallied and gold was in the process of taking another employment data related beating. But then it all turned around. Stocks sold off, gold and bonds rallied.
After ignoring the escalating tensions in eastern Ukraine for months (the Fed will sort it out) the market decided to sit up and take notice on Friday. That’s because tensions escalated even more. Fighting in the southern city of Odessa broke out and left 42 mostly pro-Russian supporters dead.
Now there will be retribution. It doesn’t look like this situation will die down at all. Like Syria before it, Ukraine is now a plaything of the major powers. Europe and the US want Ukraine to turn West, and merge into the EU trading system. It was set to do this late last year when then President Viktor Yanukovychbaulked. Soon after he was gone…
Russia sees Ukraine as natural part of the country. Indeed, there are many parts of Ukraine that sees itself as Russian. Hence the tug-of-war. Unfortunately, it’s the citizens that suffer the most. Expect the situation to get much worse before it dies down. Elections are scheduled for 25 May, which should be interesting. The country is already on the cusp of a civil war (if not already in one), so we doubt democracy will get a look-in.
Just last week, the International Monetary Fund (IMF) approved a two-year loan of US$17 billion to Ukraine. This new loan follows two other failed IMF packages, which are still outstanding. The West clearly wants Ukraine in its corner, whatever the cost.
So don’t expect this to go away. Not even the Fed can get rid of it.
for The Markets and Money Australia