Thursday, August 13, 2009

Morning update/ Market Thread 8/13

Good Morning,

Futures are up slightly before the bell, I’m on my mini machine so producing a decent chart isn’t going to happen this morning. I’ll be back to my office later this morning.

The action in yesterday’s market did not look or feel natural to me at all. Flat futures and then a relentless pump right at the open that left behind gaps as it went? That was not mom and pop, nor was it wholesome and generic institutional buying. Think of it what you will, it seems to me that we have players who are out of control, and I believe the biggest of those to be our own manipulative government. Sad and not the way supposedly free markets are supposed to work.

This morning we learn that retail sales are still falling:
Retail sales in July were unexpectedly down and sharply disappointing. Overall retail sales slipped 0.1 percent in June, following a revised 0.8 percent boost the month before. The July decline came in well below the consensus forecast for a 0.8 percent advance. Excluding motor vehicles, retail sales dropped 0.6 percent, following a revised 0.5 percent rise in June. The market had projected a 0.1 percent uptick for the latest month. Weakness was led by gasoline sales which declined 2.1 percent in July, following a 6.3 percent jump the prior month. Excluding motor vehicles and gasoline, retail sales fell 0.4 percent, following a 0.1 percent dip the prior month. Weakness was widespread in the components but there is some speculation that a shift in tax free days for back to school cut into July sales and will boost August numbers. Also, the auto sales numbers were not as strong as indicated by unit sales data and could be price related. Nonetheless, the July data are disappointing.

Outside of gasoline and motor vehicles, sales were generally negative. Declines were notable for building materials & garden equipment, down 2.1 percent, and sporting goods, hobby, book & music stores, down 1.9 percent. Gains were seen in health & personal care stores, up 0.7 percent; clothing, up 0.6 percent; and in food services & drinking places, up 0.4 percent.

Overall retail sales on a year-ago basis in July were down 8.3 percent, slipping further from down 8.9 percent in June. Excluding motor vehicles, the year-on-year rate fell to down 8.5 percent in July from down 7.8 percent the previous month.

The July decline in retail sales will lower economists' forecasts for third quarter GDP and will likely lead some to hedge their claim that the recession is over. A key factor in deciding when the recession ends is business sales-which includes retail sales. But today's numbers are complex when taking into account how auto sales are estimated (small sample of dealers) and that lower prices impacted at least two key components (autos and gasoline). Personal spending in the personal income report will address these issues and should get heightened attention later this month. While the July dip in sales was disappointing, it likely will not be as bad in the personal income report-especially in inflation-adjusted terms.

Always has to be a reason why it’s not as bad as it seems. Whatever Econopray.

Jobless claims rose for the week, “unexpectedly,” of course:
The rate of layoffs is heavy but steady as first-time jobless claims were little changed in the Aug. 8 week, at 558,000 vs. 554,000 in the prior week. The numbers, in a plus, are a little bit below the four-week average, which is at 565,000. Continuing claims fell steeply, down 141,000 for data in the Aug. 1 week to 6.202 million. But the decline is hard to read, reflecting either new hirings and/or the expiration of benefits. The economy may be in recovery or at least is steady but the outlook for the jobs market, and how far it lags, is a serious concern for the economic outlook and for policy makers.

In a VERY significant development, import and export prices fell hard with yoy import prices down a stunning 19.3% in July, an INCREASE from 17.4% in June. Export price declines accelerated from -6.4% to -8.1%. Not good. This is price deflation on a massive scale and is now in the range of deflationary spirals. PPI data comes out next week, that will be important, as trumped up as it is, to confirm that possibility.
Import prices fell 0.7 percent in July reflecting a 2.8 percent month-to-month drop in the price of petroleum imports. But excluding petroleum, import prices are still lower, down 0.2 percent to extend a string of roughly breakeven readings that point to flat non-energy price pressures. But the year-on-year rate for non-petroleum import prices, at minus 7.3 percent, does show how much the recession has hurt pricing power.

Export prices fell 0.3 percent in the month reflecting a 4.9 percent decline in agricultural export prices. Excluding agriculture, export prices firmed 0.2 percent reflecting steady conditions across most components.

Quantitative easing has made for plenty of angst over the outlook for inflation reflected in the high price of gold and increases in commodity prices. Concern over deflation may not be over and this report does show monthly headline declines, but growing strength in many economies, including perhaps this economy, will likely make such concern fade. This report is benign, pointing to little trouble for tomorrow's report on consumer prices and next week's report on producer prices.

That’s all I have this morning, it seems to me that perhaps too many people are expecting this overdone rally to end and so far it hasn’t, with a little help from our “friends.”

Have a Good Day,