Monday, 2 December 2013

Weak US employment drives bull market

From Bloomberg today:

The weakest employment recovery in seven decades is proving a boon to equity markets.

Five years into a rally that has restored $14 trillion to share prices, U.S. payrolls remain 1.5 million below the level in 2008, according to data compiled by Bloomberg...

While American workers struggle, investors are benefiting as expense reductions and record low borrowing costs drive profits and underpin a 167 percent advance in the S&P 500 over the past 57 months. To bulls like Michael Holland at Holland & Co., equities will keep rallying as long as the Fed remains more concerned about employment than inflation.

“The weakness in jobs is continuing fodder for the Fed to fulfill its most recent and steadfast comments about the support of the economy,” Holland, who oversees more than $4 billion in New York, said in a Nov. 26 phone interview. “Until the labor market gets better, the two parts of dual mandate have to be served,” he said. “I’m still pretty set in my position and prepared to see the market go higher.”

It is not just stocks that are benefitting from easy monetary policy. Housing markets have also seen prices surge, especially outside the US. From Nouriel Roubini last week:

[S]igns of frothiness, if not outright bubbles, are reappearing in housing markets in Switzerland, Sweden, Norway, Finland, France, Germany, Canada, Australia, New Zealand, and, back for an encore, the UK (well, London). In emerging markets, bubbles are appearing in Hong Kong, Singapore, China, and Israel, and in major urban centers in Turkey, India, Indonesia, and Brazil.

Signs that home prices are entering bubble territory in these economies include fast-rising home prices, high and rising price-to-income ratios, and high levels of mortgage debt as a share of household debt. In most advanced economies, bubbles are being inflated by very low short- and long-term interest rates. Given anemic GDP growth, high unemployment, and low inflation, the wall of liquidity generated by conventional and unconventional monetary easing is driving up asset prices, starting with home prices.

Indeed, a report on Sunday from the China Index Academy showed that home prices in China continued to rise in November. The average price of a new home in 100 major cities rose 10.99 percent year-on-year last month, faster than the 10.69 percent increase in October.

At least China's manufacturing sector also continued to expand in November. Another report on Sunday from the National Bureau of Statistics showed that the official manufacturing PMI for China was unchanged from October at 51.4.

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