Update 9:00 a.m.:

Stocks are definitely back in the follow-the-euro mode.  The Dow was trading quietly down roughly 150 points as the euro had rebounded to 1.207.  But the euro started falling and is trading just below 1.20 vs. the dollar for the first time since March 2006.   The Dow tumbled on that and is now down 250 points.  I would expect some European central bank intervention or intervention by the Fed to try to reverse the euro's slide, but they haven't shown up yet.

Bond prices are edging higher.  The 2-year is .72%, the 5-year 1.99%, and the 10-year is higher by 1&10/32s to yield 3.21%.  The 30-year bond is up over two points to yield 4.14%.

Update 7:30 a.m.:

Since the opening, the markets have been relatively stable.  Of course that range of stability has been from -150 to -200.  The Dow is currently down 155.  One thing I've already noticed is that trading seems to be following the euro.  After the early morning low on the euro of 1.203, the euro has bounced around between 1.203 and 1.207.  The Dow has been trailing those small movements.  The Dow was down 200 when the euro sank again to 1.203 but is now down 155 as the euro is back to 1.207.  This makes no sense of course, but we're probably still dealing with computers making decisions based on the currencies. 

Bond prices are steady near the early highs.  The 2-year is .74%, the 5-year 2.02%, and the 10-year is now higher by 28/32s to yield 3.26%.  The 30-year bond is higher by 1&1/2 points to yield 4.19%.

Morning Comment:

There was plenty of action before the Nonfarm Payroll number was released.  Hungary said they would not implement austerity programs because the economy was in grave condition.  The government in Hungary said the previous administration had lied in previous economic statistics.  (Hungary is a member of the European Union but not part of the euro currency.)  There was also a rumor of a major loss at a French bank, although that was denied.  Based on that, the euro fell as low as 1.203, and Dow futures were down 80 points in pre-opening trading.  And this was all just before payrolls. 

The Nonfarm Payroll number has just been released, and I doubt you’ll hear much about Hungary the rest of the day.  The “whisper” number on payrolls was +600k and the official economists' consensus was +520k, but Nonfarm Payrolls rose by only 431k.  The really bad news in the number was that 390k of the gain was in government workers.  Temporary census workers were 411k.  There was a 21k drop in other government workers.  But the point is that private payrolls increased by only 41k.  That is much weaker than expected.  Economists were expecting a gain of 180k in private payrolls. 

The Unemployment Rate fell to 9.7% from 9.9%, but this was actually a bit of bad news.  The fall in the rate was due to the BLS shrinking the labor pool.  What we need to see is an increase in the labor pool.  The U-6, the unemployment rate plus discouraged and marginally attached workers, fell to 16.6%.  Good news?  Guess so. 

Manufacturing jobs continued to grow, this month by 29k vs. 40k last month.  But construction jobs fell by 35k which all but wiped out the 41k gains of the previous two months.  Those months were the first gains in about three years. 

This report was pretty ugly in almost every way, but I’ll end on some good news.  The workweek rose again by .1 hours.  This is a positive sign.  Perhaps jobs can be added in the future.  Hourly wages also rose by .3%. 

Overall though, this report was a huge disappointment, and this is not what traders had in mind in the rally Wednesday. As you recall, traders were buying stocks and selling bonds based on the belief the risk/reward would favor those positions.  But Dow futures are down almost 200 points, and bond prices are higher.  The 2-year is .74%, the 5-year 2.02%, and the 10-year is higher by 28/32s to yield 3.26%. 

I’ll be back after the open.  I’m sure there will be plenty of updates on the day. 

Dwight Johnston