Is the Week All About the Jobs Report?

The week ahead is focused again on jobs. The data delayed a week due to how the Moon rises over Jupiter in the third year of the Sun… Whatever, the key issue will be the trend towards more jobs being created. The expectations are for 210,000 new jobs in February. This has been the one consistent the last few months and without the continuation of the trend some are looking for a pullback in stock prices. Based on that approach the data has renewed signficance for the week ahead.

I have been digging to find out why the emphasis on jobs in many of the reports posted over the weekend. The best I have been able to discern is amusing on the surface, but when you let it settle is shows you how the system is wired and how analyst on Wall Street see things or should we say manipulate them towards their best interest.

The direction of gasoline prices has become a renewed concern over the last month as the price at the pump has gained better than thirty cents in most places. The price at the pump has eclipsed $4 per gallon in some areas of the country. The increase in prices is akin to a tax on the consumer. The impact is immediate as it takes place each time you fill your automobile with fuel. Will it have an impact on spending and economic growth if the trend continues? There in lies the million dollar question for investors.

There is the arguement that natural gas is cheaper than in 2008 at $2.50 per million BTUs which could help offset some impact of rising gasoline costs. The chart below shows the significant drop in natural gas prices over the last year. We know the employment data is improving, more people finding jobs in 2012. This fact is being compared to the last time gasoline rose above the $4 mark in 2008. Thus, the ecnomic impact of higher gasoline prices will be offset by more people finding jobs. Thus the negative of the price in fuel is being offset by the positive of lower unemployment.

Therefore, the sentiment relative to the improving jobs picture will offset the negative impact of higher gasoline prices. We can also add to the lower prices of commodities overall. Agriculture costs are lower in cotton, coffee, sugar… etc. Natural gas is lower… and base metals are cheaper. Thus, the impact of higher fuel costs are not as important to the economic picture overall.

This all sounds good, but when you piece it all together you see how this puts added pressure on the jobs report this Friday. This puts the total picture into focus as to how the jobs report has grown in significance over the last few weeks as the price at the pump has risen.

The issue in Iran also remains a key point facing the broad markets. Isreal’s Prime Minister visits Washington this week and the threat of a pre-emptive strike by Isreal is the headline discussion. President Obama issued his warnings to both countries relative to the issue at hand and the development of nuclear weapons by Iran. All a chess game at this point and the rehtoric is the key issue relative to oil prices short term. The speculation in the commodity is alive and well along with a new trend in volatility as the price of crude jumps and falls more readily on the speculation good or bad. The chart below shows the increased volatility last week in the price of oil.

When you tie it all together it is interesting how Wall Street has managed to put the jobs report squarely in conjunction with the crude oil picture. I love the fact we have some how related the improving job market to being able to afford the rise in the price of gasoline. Wow, I didnt’ see that one coming, but it makes for a great story nonetheless. Putting this all together is like talking about the ooth fairy, Santa Clause and the Easter Bunny having lunch. The bottom line from my view is pay attention to the data this week as it has taken on a renewed signficance in the current trend higher for the broad markets.