Thursday, September 16, 2010

Morning Update/ Market Thread 9/16

Good Morning,

Equity futures are lower this morning, with bonds flat, the dollar down slightly, oil down, and gold higher with another new all time high this morning.

The Weekly Jobless Claims for last week came in at 450,000, that is down from last week’s report of 451,000 which was revised higher, of course, to 453,000. The consensus was looking for 455K, which I’m sure they’ll get with revisions. This is about what I was expecting for last week as it was a 4 day week. I believe the last two reports were influenced by the holidays, but they should normalize going forward. Here’s Econoday:
Delays tied to the Labor Day week cloud what is otherwise a favorable jobless claims report. Initial claims came in at 450,000 for the September 11 week for the lowest total since July (prior week revised to 453,000). The four-week average posted its sharpest decrease of the year, down 13,500 to a 464,750 level that is about 20,000 lower than mid-month August. This comparison points to strength for monthly payrolls. Yet delays surrounding Labor Day, both administrative delays on the government side and delays for those filing claims, may be holding down the total.

Continuing claims are also positive, down 84,000 in data for the September 4 week to 4.485 million. The four-week average of 4.503 million is slightly lower than the month-ago comparison. The unemployment rate for insured workers fell one tenth to 3.5 percent.

Today's report joins this week's run of favorable economic reports though expectations of improvement for the labor market will depend on confirmation of improvement in next week's report.

What favorable reports? Nice try. There are still 4 million+ people drawing Emergency Unemployment, that number dropped by 400K, but that number is unadjusted and I’m assuming is due to the shortened week.

Speaking of spin and unemployment, FedEx spun the economy as “improving” but they simultaneously announced they are laying off 1,700 employees. Seems that’s the new American way – let’s call it spin and slash.

The next monthly Employment Report will come on October the 8th. I expect this number to disappoint as September is one of the near zero seasonal adjustments for the Birth/ Death model, and because of reports like this from Washington State (Puget Sound Business Journal):
Washington’s unemployment rate remained frozen at 8.9 percent in August, with private sector employers adding 900 jobs.

But that hiring was offset by the lost of about 2,900 government jobs, according to figures released Wednesday by the Washington State Employment Security Department.

Private sector job growth in August was down significantly from the 3,100 jobs added in July, when the state’s unemployment rate was also 8.9 percent.

Washington State has done relatively better than most, but this trend of government job losses overriding any positive job gains is a wave C phenomena as the government is still running HUGE deficits but would have to run tremendously larger ones to keep up with the hole they have dug for themselves.

The PPI rose by .4% month to month in August. That’s hotter than the consensus of .3%, and is double the prior month’s .2%. Excluding food and energy it rose by .1%, which is down from .2%. Once again this is reflecting hot money that rotated into the energy markets. I believe that will be temporary as the hot money will be forced to move eventually or will be overwhelmed by the forces of deflation which are still roaring despite near daily POMO activity. Yes, gold is saying “knock it off” to the Fed. So are elevated PPI numbers, and that does not bode well for more outright stimulus. Note that year over year PPI fell from 4.1% to 3.0%:
Headline producer price inflation spiked in August but the core rate slowed. Energy was the difference. But the scare over salmonella helped to partially offset the jump in energy. The overall PPI accelerated to a 0.4 percent gain in August from 0.2 percent in July. The median forecast had called for a 0.3 percent increase. At the core level, the PPI eased to a 0.1 percent gain, following a 0.3 percent boost in July. The August core matched expectations.

Looking at key broad components, energy surged 2.2 percent after a 0.9 percent decrease the month before. Meanwhile, food prices eased, declining 0.3 percent, following a 0.7 percent jump in July.

Within energy, home heating oil increased 7.0 percent while gasoline jumped 7.5 percent. Residential gas and electricity rose 1.4 percent and 0.6 percent, respectively. The decline in food prices was led by a 4.7 percent drop in the price for fresh eggs as consumers kept away from this product tainted by salmonella in some shipments from two producers.

Softening the core rate was a 0.4 percent decline in passenger car prices along with scattered slippage in prices of various other components. Providing upward pressure were a 0.6 percent boost in pharmaceuticals and a 0.2 percent rise in prices for light trucks.

For the overall PPI, the year-on-year rate decreased to 3.0 percent from 4.1 percent in July (seasonally adjusted). The core rate eased to 1.3 percent from 1.5 percent the prior month. On a not seasonally adjusted basis for August, the year-ago the headline PPI was up 3.1 percent while the core was up 1.3 percent.

Headline inflation jumped largely on higher energy costs and a key question is whether the rise in energy costs is a trend or a blip. With modest economic growth, odds are that it is closer to a blip than a trend. Nonetheless, the headline number spooked traders as Treasury yields firmed and equity futures dipped despite improvement in today's initial jobless claims number.

Most food futures were spiking into the month of August, I find it hard to believe that eggs kept the price down, but then again I find most of what the government reports to be unbelievable – as in completely.

Speaking of unbelievable, TIC data (Treasury International Capital) was reported for the month of July as being positive by a net $63.7 Billion. Riiiight. I’ll have to look into the Treasury’s site deeper, but this makes no sense whatsoever unless they are counting their own Fed buying as private inflows, lol, which they are. Creative accounting somewhere, here’s the report, again I’ll dig deeper and will report findings in the daily thread:

TIC july

The Philly Fed data is released at 10 Eastern and is likely to move the markets. Tomorrow comes CPI and Consumer Sentiment.

No change to the market report, we’re still rattling around just underneath SPX 1130 overhead. This is the same thing that happened the last two times we were here, we trapped under it for several days and then it failed. Perhaps there’s enough POMO money to get it to break through, but if it does, it will be just another sucker move.

Below is a 30 minute chart of the SPX showing the rising wedge. We fell just below it and then began to follow the lower trendline higher:

Bonds are right back on their uptrend line following yesterday’s action and are threatening to break beneath that line again. Keep an eye on that, if it breaks on volume we could be in for some changes. I find it hard to believe, however, that the Fed will just let the bond market send rates higher without a fight. Higher rates would completely destroy what’s left of the housing market, and it would dramatically increase our government’s funding costs. Oh yeah, the Fed doesn’t really care about either of those things because they are private banks who profit from the people either way. Momentary laps, sorry.

I know this sounds like a broken record, but the data is not what is being reported or spun. Every time I hear the word “Fed” I have this strange and twisted vision of Ben Bernanke immitating Annie Lennox in black spandex (sorry for the mental image)…

Eurythmics - Would I Lie To You: