First Impressions

A Note on Today’s Employment Report
Doug Ashburn – JLN
By now, you have already heard the news, but here is a summary – U.S. nonfarm payroll was up 142,000, but far below the expected 220,000. The headline unemployment rate fell a tick from 6.2 to 6.1 percent. My favorite number, U6 which adds in underemployment figures, fell two tenths to 12.0. Finally, the participation rate slipped again to match the multi-generational low of 62.8 percent first set last October.

A full slice-and-dice can be found in the Reuters story below.

I planned to write another piece about what I would call the alarming trend of lower participation, but then I came across the second piece below regarding the recent Fed paper caught my eye. It appears that the Yellen Fed may be slowly and quietly shifting its stance on the nature of our employment situation from cyclical to structural.

For the last several years, the Fed has been operating under the assumption that our employment woes are attributed to economic weakness from the financial crisis. Hence, ultra-low interest rates and quantitative easing have been the policy response, in order to jump-start the economy.

This new paper may be reaching the conclusions some of us have reached long ago, which is that we are in a new paradigm, and all the accommodation in the world cannot counteract the demographic challenges that lie ahead.

Please read it and judge for yourself.

U.S. employment growth smallest in eight months, labor force shrinks
U.S. employers hired the fewest number of workers in eight months in August and more Americans gave up the hunt for jobs, providing a cautious Federal Reserve with more reasons to wait longer before raising interest rates.
Nonfarm payrolls increased 142,000 last month, the Labor Department said on Friday. The unemployment rate fell one-tenth of a percentage point to 6.1 percent as people dropped out of the labor force.

Don’t Blame Shrinking Work Force Participation on Great Recession: Fed Board Paper
A decline in the share of Americans holding or seeking jobs is largely the product of longer-term factors such as a rising number of retirees rather than the aftermath of a particularly awful recession, economists at the Federal Reserve board say in a new paper.

Quote of the Day

The underlying message appears to be that the U.S. labor market recovery, which until this month appeared to have been firing on all cylinders, has hit a snag

Millan Mulraine, deputy chief economist at TD Securities, quoted in the Reuters story “U.S. employment growth smallest in eight months, labor force shrinks”

Lead Stories

Summer’s Over for Bonds, As Companies Return to Market
Mike Cherney – MoneyBeat – WSJ
In the U.S. corporate bond market, summer vacation is over. Companies of all stripes are flooding the market with new bond deals, making this week one of the busiest of the year so far, as corporate treasurers continue to take advantage of low rates and investors bet an improving U.S. economy will bode well for corporations.

***DA: It’s the Goldman-Morgan Back to School Sale, featuring today’s hottest trends! Corporates, sovereigns, securitizations, even munis! Come on down!

Fed’s Powell Renews Call for Benchmark Reform in Scandal’s Wake
Matthew Boesler and Christopher Condon – Bloomberg
Federal Reserve Governor Jerome Powell said regulators plan additional steps alongside market participants to change the way crucial financial benchmarks are calculated and promote the use of alternatives.

Interest-rate Volatility and VXTYN Futures – Presentations on Friday at RMC
Matt Moran –
In recent years we at CBOE have heard many inquiries on the subjects of managing interest rate risk and interest rate volatility. CBOE Holdings offers successful futures and options on the popular CBOE Volatility Index (VIX) that reflects expected stock market volatility; we have been asked if futures and options on an interest-rate volatility index also could be launched.

Barclays, BofA, Citigroup Sued for ISDAfix Manipulation
Bob Van Voris and Matthew Leising – Bloomberg
Barclays Plc (BARC), Bank of America Corp., Citigroup Inc. (C) and 10 other banks were accused in a lawsuit of conspiring to manipulate ISDAfix, a benchmark used to set rates for interest rate derivatives and other financial instruments.
The Alaska Electrical Pension Fund sued yesterday in Manhattan federal court, claiming the banks colluded to set ISDAfix at artificial levels that allowed them to manipulate payments to investors in the derivatives. The banks’ actions affected trillions of dollars of financial instruments tied to the benchmark, the pension fund said.

Argentina swap plan gets cold reception in New York
Davide Scigliuzzo – Reuters
Argentina’s plan to emerge from its second default in 13 years by swapping defaulted debt for new local-law bonds is receiving a cold reception in New York, where officials from the country’s finance ministry are meeting with investors.

***DA: Thanks but no thanks.

The Bond Bull Is Not Quite Dead
Paul Vigna – MoneyBeat – WSJ
The Treasury market that the hot-stock boys are just itching to see go belly up probably has more room to run, said Heather Loomis, J.P. Morgan’s west coast director of fixed income, this morning on the MoneyBeat show.

Central Banks

ECB Readying Asset-Backed Purchases After Rate Cut, Draghi Says
Jeff Black and Catherine Bosley – Bloomberg
The European Central Bank cut interest rates and will start buying assets, in a bid to boost the flow of funding for the euro-area economy while stopping short of broad-based quantitative easing.

Draghi Sees Almost $1 Trillion Stimulus as QE Fight Waits
Simon Kennedy – Bloomberg
Mario Draghi signaled at least 700 billion euros ($906 billion) of fresh aid for his moribund economy and left a fight with Germany over sovereign-bond purchases for another day.
Pledging to “significantly steer” the European Central Bank’s balance sheet back toward the 2.7 trillion euros of early 2012 from 2 trillion euros now, the ECB president yesterday announced a final round of interest-rate cuts and a plan to buy privately owned securities. His mission: to revive inflation in the 18-nation euro area.

***DA: Wow. That is larger than initially reported.

Draghi’s Gambit
Joshua M Brown – The Reformed Broker
My pal Peter Boockvar with a plain-English summation of what Draghi did today during the ECB’s policy meeting – and why The Street is not terribly surprised…

How the ECB Finally Learned to Be Like the Fed
Michael J. Casey – MoneyBeat – WSJ
To understand how the European Central Bank came to take the drastic step of cutting rates deeper into negative territory and laying out a plan to buy asset-backed bonds, it’s necessary to go back six years and consider what its counterpoint across the Atlantic was doing then.

President of Minneapolis Fed Calls for Higher Inflation
The president of the Minneapolis Federal Reserve, Narayana Kocherlakota, said on Thursday that inflation was set to stay below the Fed’s target of 2 percent until 2018, which he said was a sign that the Fed should do more to lift inflation and bring down the unemployment rate.


If Scots keep the pound they forgo independence
Martin Wolf – Financial Times
Is the opposition of the three main political parties at Westminster to a post-independence currency union with Scotland a bluff? North of the border, many believe it is. I have no window into men’s souls: these Scots may be right. But I hope it is no bluff.

***DA: Independo-lite.

Indexes & Index Products

F-Squared Says Regulators Are Considering Civil Action
Christopher Condon and Sabrina Willmer – Bloomberg
F-Squared Investments Inc., one of the largest managers of investment products built using exchange-traded funds, said U.S. regulators were considering a civil action against the firm over performance claims made in the firm’s advertising materials.


Century-old London gold price benchmark starts makeover
The operator of the London gold price benchmark said on Thursday it formally started the process to find a new administrator for the century-old mechanism that will halt the telephone call that four institutions enter twice a day in favour of an electronic solution.

Gold In The Time Of The U.S. Dollar
Seeking Alpha
Continuing on the theme of the impact that strength in the US dollar might have on the price of gold in dollars, in this week’s discussion we investigate the close historical relationship between the price of gold expressed in dollars and the value of the dollar.

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