Thursday, October 1, 2009

Morning Update/ Market Thread 10/1

Good Morning and welcome to the month of October!

Equity futures are slightly down or close to flat this morning after forming a pretty obvious triangle over the past few days:

The dollar is up, oil and gold are flat, and bonds are higher.

Ken Lewis, runner up only to Jamie Dimon for Asshat of the Year, is finally out at Bank of America. Applause! Bring on the next market manipulator… Seriously, these institutions have taken over America, our money system, and our government. They need to be broken up and the “Fed” abolished.

Now we have the Super Fed to contend with, the IMF. They just revised their 2010 forecast for growth upwards from 2.5% to 3.1%. Ahhh, and I believe in their forecasts because they have been so accurate to date – not.

The Monster Employment Index, another very fine gauge of employment (not), fell in September from 121 to 119.

The Challenger Job-Cut Report came out showing that fewer announcements of mass layoffs are occurring, here’s Econoday:
Challenger's count of layoff announcements fell to 66,404 in September, down from 76,456 in August for the lowest total since early in the recession of March last year. Industrial goods showed improvement as did health care and construction. Autos showed a big jump in the month and are already near a full year record.

Motor vehicle sales come out today. With cash for clunkers ending I would expect to see deterioration.

The personal income and outlays data came in mostly benign but helped again by a cash for clunkers give away whose effect will not be there in the future:
News on the consumer sector this morning was mixed as person income came in a little above expectations but jobless claims were somewhat worse than anticipated. Personal income in August edged up 0.2 percent after an upwardly revised 0.2 percent increase the month before. The August gain in income was above the consensus forecast for a 0.1 percent rise. The wages and salaries component also rose 0.2 percent in the latest two months.

While everyone expected spending to be up due to a surge in motor vehicle sales, unexpected good news was that consumers were spreading some cash around elsewhere, too. Consumer spending spiked on cash-for-clunkers auto purchases as personal consumption expenditures surged 1.3 percent in August, following a 0.3 percent rise in July. The latest number topped the consensus forecast for a 1.1 percent increase. Once again, strength was in durables, which jumped 5.3 percent on sharply higher motor vehicle sales. Nondurables were robust also with a 2.3 percent boost while services advanced 0.4 percent.

Inflation was mixed as the headline number was moved notably higher while the core rate was subdued. The headline PCE price index jumped to 0.3 percent after flat reading in July. Core PCE inflation was unchanged at 0.1 percent, equaling market expectations.

Year on year, personal income growth slipped to minus 2.6 percent from minus 2.5 percent in July. Year-ago headline PCE inflation firmed to negative 0.5 percent from minus 0.8 percent the previous month. Year-ago core PCE inflation eased to 1.3 percent from 1.4 percent in June.

The good news is that the consumer is making a comeback-even beyond the jump in auto sales. Nondurables and services were healthy-even after discounting inflation. And there was a moderate gain in income. And soft core inflation numbers should keep the Fed happy-letting the FOMC keep interest rates low as planned. Overall, the personal income report was favorable and should be a positive for equities. However, initial jobless claims were higher than expected and that may get more market attention.

Note the year over year numbers are still negative, even with government handouts. What will they be without?

The weekly initial unemployment claims number came in at 551,000, still extremely elevated:
Weekly claims data show no significant change. First-time claims did rise 17,000 to 551,0000 and the prior week was revised 4,000 higher to 534,000 but the four-week average dipped reflecting solid improvement in prior weeks. The four-week average is at 548,000 -- down nearly 25,000 from this time last month and the lowest level since early in the year. Continuing claims fell 70,000 to 6.090 million and show slight month-to-month improvement with the four-week averages at 6.155 million vs. 6.220. The unemployment rate for insured workers is unchanged in the week at 4.6 percent, down a tenth from this time last month. There was no significant reaction to the data which support expectations for incremental improvement in tomorrow's big payroll report for September.

The manufacturing ISM, pending home sales, and Construction Spending are released at 10 Eastern.

A triangle has formed over the past few days in the indices. Remember that wave 5’s can be tricky. I expect higher as it plays out, but it could be volatile until it turns. Again, it can truncate or extend. Yesterday’s move down and then up produced red hammers across the indices. Those and the triangles look a little bullish, but then again the volume was higher on the decline for the red candles. It sure looks like wave 2 down and then the start of wave 3 up… if it is, I would expect a powerful move up within the next couple of days. I should note, however, that the triangle has me thinking that it could actually be a wave 4 triangle and that wave 5 up has not actually begun yet. The DOW did make an intraday lower low yesterday, but the S&P did not so it puts the count that looked so solid a little bit in doubt. Regardless, wave c up does not appear to be over yet...

Here’s a tune dedicated to Ken Lewis and Bank of America…

Supertramp – Crime of the Century: