Update 1:20 p.m.:

Update 12:10 p.m.:

I haven't had an update in the last couple of hours, but it's not because the market was calm.  It just seemed pointless to report on the frequent swings between near unchanged and down 100 points.  Currently, the Dow is down 141 points.  The euro has actually closed higher on the day, but that hasn't drawn in buyers ahead of the weekend.  Bond prices are lower.  I'll be back with the closes later. 

Update 9:30 a.m.:

The rebound by the euro from 1.26 to 1.275 now seems to have an explanation.  Rumors in Europe are that the EU and/or the ECB will announce over the weekend that they are creating a one-year 600 billion euro loan facility.  This will allow banks holding Greek debt, as well as other euro zone debt, to borrow at a very low rate to fund those bonds at face value.  If this does happen over the weekend, the markets might really like that.  But, I believe this will be just another case of obscuring the problem temporarily and re-shufflling the deck chairs on the Titanic.  We'll see how long this rumor holds up.  The Dow bounced back into positive territory again but it appears to be losing traction.  The Dow is now down 60 points.
 
Update 9:00 a.m.:

The Dow roared back all the way into positive territory, led by a rally in the euro.  The Dow reached +15.  That lasted a nanosecond as the euro started to retreat again.  The Dow fell to -110.  Since then, the euro has stabilized and improved slightly, and the Dow is now down only 67 points.  Does this trading on the euro all seem contrived and somewhat silly to you? If you said yes, I agree.  But that's all that traders seem comfortable latching onto today.  The jobs report is long forgotten. 

As stocks and the euro have seemingly recovered out of the danger zone, bond sellers are back.  The 2-year is now .83%, the 5-year 2.18%, and the 10-year is now down 4/32s to yield 3.41%. 

I'm sure we'll see more volatility today, but it looks like we won't have to worry about any extremes the rest of the day. 
  
Update 8:15 a.m.:

After the Dow hit a low of -278 points about 30 minutes ago, the euro started to recover.  That has brought the Dow back to down only 118 points.  Traders are anxious for European markets to close.  Those indexes fell sharply in their late hours.  Perhaps when Europe closes our market can recover. 

Just as quickly as bond prices soared, they have fallen back.  The 2-year is .80%, the 5-year 2.11%, and the 10-year is now higher by only 2/32s to yield 3.39%. 

Update 7:35 a.m.:

Uh oh.  I mentioned below the rapid early fall then comeback.  But in the last 20 minutes the Dow has tumbled to -260 points and the NASDAQ is down 3%.  European stock indexes and the euro are leading our stocks lower.

We're seeing another surge in treasury buying.  The 2-year is .75%, the 5-year 2.07%, and the 10-year is higher by 22/32s to yield 3.32%.  The 30-year bond is higher by over a point to yield 4.13%.  

I'm sure I'll be back with frequent updates today.
 
Update 7:10 a.m.:

In the Morning Comment I wrote that maybe for at least one day the markets in the U.S. could focus on the good jobs report and worry about contagion again next week.  Based on the early morning trading pattern, that isn't going to happen.  The Dow opened lower by about 40 points and then rallied to +58 points.  But the sun quickly went behind the clouds and the Dwo is now down 95 points.  The NASDAQ is actually down almost 2%.  European stock indexes, which were holding relatively flat, have started to tumble again and that seems to have triggered selling here.  The euro, which opened at 1.277 has fallen to 1.266.  Traders are also noting that LIBOR rates and sway spreads are widening rapidly.  This reflects concerns about the major banks.  This is mostly due to concerns about European banks, but the banking system is international. 

Bond prices opened sharply lower but prices are now unchanged to higher.  The 2-year is .78%, the 5-year 2.14%, and the 10-year is now higher by 4/32s to yield 3.38%.

When I started writing this update, the Dow was down 95 points.  In the very few minutes it took to write this, the Dow is now down only 40 points.  Needless to say, this is going to be a very volatile day.

Update 6:10 a.m.:

After lavishing praise on the latest Nonfarm Payroll report, I have to lower the overall grade from "A" to "B-".  The details have now been fully released and we see what the Bureau of Labor Statistics did with the birth/death adjustment of new businesses.  In March the BLS added 88k jobs via this specious modeling adjustment.  Now we have learned that for this April number the BLS added a huge 188k jobs from the birth/death adjustment.  This is an absurdly large adjustment even in really good times.  So, if you add the 188k adjustment and the 64k census workers, you come up with a total of 252k of the total reported gain of 290k jobs that are under a cloud.  
    
Morning Comment:

After yesterday’s epic day, it didn’t appear that the Nonfarm Payroll report would matter today.  But after the number we just got, I think it would be a mistake to dismiss this report.  First though, let’s recap what happened overnight and prior to the jobs report.

The euro gained some strength overnight, and European stock indexes are trading weaker but not significantly so. The members of the EU are having another one of their infamous emergency meetings tonight.  So it looks like another weekend where hopes are that the EU will come up with some sort of miracle cure for the debt disease outbreak.  It seems to me the ship has sailed though.  The spread of debt worries have moved beyond the obvious like Greece to other countries and other types of corporate entities.  This will all lead directly back to the banking system.  This is why Greece has mattered since day one.  Contagion is ugly and can infect the entire financial system.  Greece is merely the 2010 version of the subprime mortgage.

The plunge in the Dow by 998 points at one time points out the vulnerability of this market as well as the dangers of computer-based program trading when left unchecked.  While market pundits are trying to brush this event aside, I think it did shake the system.  The sense of entitlement on Wall Street with an invulnerable market was destroyed.  This was a big deal.  This doesn’t mean the market won’t trade higher from time to time, but it does mean that traders will no longer be able to completely ignore any bad news.

Now for the good news - really good news this time.  Nonfarm Payrolls rose by 290k, and only 64k of those jobs were government (census) workers.  This means 231k jobs were created in the private sector. Almost every job sector rose.  Of course there are always a few concerns.  First, the hourly wage was unchanged after declining the month before.  Flat to falling wages will not support a strong recovery.  Second, we haven’t seen yet how many jobs the BLS added with their modeling assumptions,especially the infamous birth/death adjustment.  Third, this number could always be revised lower.  Fourth, the U-6 unemployment rate that adds back in discouraged and “marginally attached” workers actually rose to 17.1%.  Despite these question marks, this Nonfarm Payroll number deserves a solid "A."

The rise in the Unemployment Rate from 9.7% to 9.9% is perversely good news.  This is actually one of the better signs you usually see after the job market has turned higher.  As more people declare themselves back in the workforce as they sense jobs are coming open, the available labor pool rises.  This makes the Unemployment Rate increase until those new entries find jobs.  All in all, this report was significantly better than expected.

Despite this report, it does appear the uncertainty in the global market place is muting any positive reaction.  Dow futures are higher by 65 points, roughly where the index was before the payroll report.  Bond prices are down sharply, but no lower than before the number.  After the huge surge in buying of bonds yesterday and the subsequent plunge in yields, we’re seeing the market correct some of that excess today.  The 2-year is back to .83%, the 5-year 2.22%, and the 10-year is down 18/32s to yield 3.47%. 

This is enough to start the day.  I’m sure we’ll see some big changes today. It seems to me that at least for this one day, the jobs report should trump the concerns in Europe.  Next week we'll back in the business of worrying about contagion, but we should get at least one good day off.   I’ll be back with updates.

Dwight Johnston