Financial Update For Jan. 11, 2010

• TSX +66.3
• DOW +11.33
• Dollar +.38c to 97.00cUS
• Oil +$.09to $82.75US per barrel.
• Gold +$5.10 to $1,138.20USD per ounce

Bad numbers, but good news
Hope remains despite rise in U.S. jobless figures
Ian McGugan, Financial Post
Wall Street is looking for a happy ending to the Great Recession. Now if it can just get the facts to agree.
Many forecasters had expected yesterday's release of U.S. payroll data to show that the world's largest economy was no longer destroying jobs. Instead, the U.S. Labor Department reported that nonfarm payrolls continued to shrink, shedding 85,000 jobs this past month.
There were bright spots in the lacklustre report. Most notably, November figures were revised upward to show that the economy gained a handful of jobs during that month. It was the first time in two years that U.S. payrolls have managed to eke out any increase.
Overall, though, the U.S. unemployment rate remains stubbornly high at 10% of the workforce. About 15 million people are unemployed, double the number of two years ago.
The continuing pace of job destruction should raise concerns about the gap between the sunny views of the recovery propounded by Wall Street and the darker reality that appears to be prowling Main Street. While stocks are surging, the real economy isn't.
This is distinctly unusual. Stocks usually suffer during periods of rising unemployment because unemployment typically goes hand-in-hand with falling corporate profits. Declining profits make stocks less attractive.
In this downturn, though, stock markets have taken off like a rocket despite rising unemployment. The S&P 500 has advanced by 70% since March, although about two million jobs have been destroyed during those months.
One force driving stock prices higher is massive stimulus spending by government. Another is near-zero interest rates, which make the future stream of dividends from stocks that much more valuable.
But stimulus spending and low interest rates can't keep a stock market up forever. Japan provides the ultimate proof of that. Despite massive government spending and near zero interest rates for much of the past two decades, the Nikkei stock index trades for about a quarter of what it did back in the glory days of the 1980s.
Based on the ratio of its current price to its earnings over the past 10 years, the U.S. stock market is trading at valuations well below its dot-com levels, but about 30% above its average levels. Stocks could take a tumble if the unemployment picture -- and the profit picture -- don't start to recover soon.
Many traders believe such a recovery is well in progress. First-time claims for unemployment benefits have been dwindling, and job losses have grown steadily smaller since the darkest days of early 2009, when nearly 700,000 U.S. workers were being thrown out of work each month.
The small gain of 4,000 jobs in November is invisible compared to the entire U.S. workforce of about 150 million people, but any jobs number with a plus sign these days constitutes a victory in the recovery story. "The fact that positive job creation occurred in November 2009 is a very important fact, one that should not be ignored despite the headline print in December," says Ian Pollick of TD Securities.
Another positive sign is the continued increase in temporary help services, which added 47,000 positions in December. This was the fifth-consecutive monthly increase in the sector and suggests that employers are feeling out opportunities, although they're still reluctant to hire full-time workers.
A further jolt of good news may be in store thanks to the U.S. Census. The once-a-decade count of every American takes place on April 1 and hiring for the survey will provide as many as a million jobs during the first half of 2010.
Derek Holt and Karen Cordes of Scotia Capital believe the combined effects of census hiring and the natural recovery process could propel job creation in the U.S. far past expectations and create two million jobs in 2010. While those new jobs would only partially replace the seven million jobs that have been lost over the past couple of years, they would at least signal an end to the current downturn.
But there is the risk of a double-dip recession if Congress and the Federal Reserve decide to remove stimulus too early. Holt and Cordes, as well as Nobel-winning economist Paul Krugman, worry that any sudden improvement in the jobs numbers could lead to a premature hike in interest rates and withdrawal of stimulus.
If there is any undeniably good news in yesterday's disappointing numbers, it's that nobody will be agitating to hike interest rates or remove stimulus anytime soon. The Great Recovery remains a work in progress.
20,600 Total U.S. jobs lost among women 25 and over.
13,400 Full-time U.S. jobs lost among women 25 and over.
December job losses reality check
8.5% unemployed
Paul Vieira, Financial Post

OTTAWA - Financial markets were dealt a reality check yesterday with disappointing December jobs data from Canada and, more notably, the United States signalling an uneven and choppy recovery, and prompting U.S. analysts to scale back expectations on rate hikes.
Analysts noted, however, that an improving trend is definitely emerging in both countries. Furthermore, some reckon unemployment levels in Canada may have peaked.
Statistics Canada said the economy lost 2,600 jobs last month, but the unemployment rate remained unchanged at 8.5%. Markets expected 20,000 new jobs in December, after an off-the-chart 79,000 gain in November.
"It's looking more believable by the day that the 8.7% jobless rate in August will mark the peak for the cycle, far below past recession highs -- 13% in 1982 and 12.1% in 1992 -- and no worse than the average unemployment rate in Canada over the past 30 years," said Douglas Porter, deputy chief economist at BMO Capital Markets.
Stewart Hall, economist at HSBC Securities Canada, said there was "palatable" disappointment given the big gain in November. But the fact the economy held onto most of those jobs "is in and of itself fairly significant," he said.
With the December figures in hand, they suggest the Canadian economy shed 240,000 jobs in 2009 -- the bulk of which occurred in the first half of the year. In the last five months of the year, the economy generated an average of 20,000 new jobs per month.
Mr. Hall said average monthly gains of 20,000 are likely in the offing, as this recovery is likely to mirror the one following the recession of the early 1990s. "One characterized by some jobs growth followed by consolidation. Not terrific, but infinitely preferable to the experience of the previous year."
The Canadian recession ended in the third quarter with meagre annualized growth of 0.4%, as domestic strength was offset by a weak export sector that was hampered by a strong Canadian dollar and weak U.S. demand. Economists estimate growth in the final three months of 2009 to register between 3% and 4%.
The Bank of Canada is expected to begin raising its benchmark lending rate in the third quarter. There is less confidence about near-term tightening from the U.S. Federal Reserve Board.
The U.S. Bureau of Labor Statistics said non-farm employment in December fell 85,000, compared to expectations for no change. The unemployment rate was unchanged at 10%, although analysts note it was due to a plunge in the labour force, as people stopped looking for work.
"Firms are still bent on boosting productivity and remain cautious about hiring," analysts from London-based Capital Economics said of the U.S. data.
The yield on the two-year U.S. Treasury note -- a market gauge of interest rate expectations -- dropped yesterday below 1%, indicating analysts believe the likelihood of a Fed rate hike has been "pushed out for a few more months," Ajay Rajadhyaksha, head of U.S. fixed-income strategy at Barclays PLC in New York, told Bloomberg News.
The U.S. bureau noted, however, that during 2009 monthly job losses moderated, from an average 691,000 in the first quarter to 69,000 in the fourth quarter. Also, the bureau revised data for November indicating the U.S. economy created 4,000 jobs -- the first monthly gain in more than two years.
Still, Avery Shenfeld, chief economist at CIBC World Markets, said the 10% U.S. jobless rate masks the "true extent" of labour slack, "as it ignores those working part-time involuntarily [and] those who gave up looking for work."