For the past couple of weeks we have observed that the markets are revisiting 2010 and have become more volatile and uneasy as a result.

Well, this Monday morning there's no change.

The Wall of Worry remains there to be scaled by markets for another week, with a couple of extra blocks to be surmounted.

First up Portugal.

As expected the Portuguese, who have joined Greece and Ireland in the bailout queue, rejected caretaker Prime Minister Jose Socrates in national elections overnight and turned to opposition centre-right Social Democrat leader Pedro Passos Coelho.

Reuters reportesd that exit polls by three Portuguese television stations gave the Social Democrats between 37% and 42.5% of the vote, far ahead of the Socialists who scored between 24.4% and 30%.

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Regardless of the winner, the 78 billion euro bailout and a harsh austerity package will go ahead, but will the populace wear it?

For Greece, there was one positive, as the country's government, the EU and IMF reached agreement late Friday on the next round of aid from last year's 110 billion bailout.

The agreement will be approved by European Finance Ministers at a meeting next week, then the EU leaders at a summit in the last week of this month, and by the IMF. The payment should be made in early July and buys Greece a bit more breathing room.

But investors in Europe still believe Greece faces more strains, as does the euro, which had another big week last week with another gain against the greenback.

In the US, the economy was the central question after another rough day on Friday with the poor jobs figures shocking US analysts and investors.

As a result there's a strengthening fear that the economy is slowing much faster than thought a week ago.

Few are warning of another recession, but there's more talk about 'stagflation' or weak demand lasting well into the second half of the year as falling government stimulus spending bites harder.

Fears about what happens when the Fed's second round of easing ends on June 30 are becoming real and starting to drive momentum, especially in US bonds where yields remain at seven month lows.

All this is a re-run in some respects of 2010 and markets survived that and bounced back in the second half, as did the US economy with 3.1% annual growth in the December quarter.

But that tumbled to a weak annual rate of 1.8% in the first quarter, taking markets by surprise which had been figuring on growth well above 2% and as high as 3% in some cases.

The catalyst for Friday's fall was the May jobs report showing 54,000 nonfarm jobs were created last month and the unemployment rate rising to 9.1%.

The market had been looking for 125,000 new jobs, but those were guesses after being as high as 185,000 in some surveys at the start of the week, before a couple of weak bits of economic data frightened investors on Thursday.

It means that only 1.8 million of the more than 8.7 million jobs lost since January 2008 have been regained.

Some economists blamed the impact of the supply disruptions impacting car companies caused by the March 11 disasters in Japan, while others blamed the spate of deadly storms across much of the south and Midwest in the month.

But the government rejected the notion that deadly storms in the Midwest and the South played a role. "We found no clear impact of the disasters on the national employment and unemployment data for May," said Keith Hall, commissioner of the Bureau of Labor Statistics, in a statement.

Total payrolls were revised down by 39,000 for March and April. March's gain was revised to 194,000 from 221,000, while April's gain of 244,000 was revised to a gain of 232,000.

That was seen as a negative as it partially reversed upward revisions in the past month or so.

US economists said there was no sign that hiring at McDonald's boosted payrolls (the company got publicity for hiring 62,000 people on a single day in May). Food and drink employment rose by 13,600 jobs in May after adding 28,000 workers in April.

Private sector employment rose by 83,000, but that was offset by a 29,000 drop in government payrolls as state and local budget cuts bit.

Service industries recorded the largest employment gains in May, adding 80,000 jobs, but retailers dropped 8,500 positions.

The number of unemployed workers out of work for 27 weeks or more rose to 6.2 million in May, or 4% of the labour force.

The labour force participation rate has held steady at 64.2% since January.

The underemployment rate, which includes part-time workers seeking full-time work, eased to 15.8% in May from 15.9% in April.

Average hourly earnings increased 6cs, or 0.3%, to $US22.98. Economists had been expecting a 0.2% gain. Earnings are up just 1.8% in the past year.

No wonder US economist Dave Rosenberg pointed out on Friday that the "labour share of national income has fallen to its lower level in modern history - down to 57.5% in the first quarter from 57.6% in the fourth quarter of last year, 57.8% a year ago, and 59.8% when the recovery began".

Copyright Australasian Investment Review.
AIR publishes a weekly magazine. Subscriptions are free at www.aireview.com.au

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