Thursday, December 23, 2010

Morning Update/ Market Thread 12/23

Good Morning,

Equity futures are down slightly this morning before the open. The dollar is higher, the Euro looks sick, bonds are roughly even, oil continues to sit on the 50% retrace Fibonacci at $90.53 a barrel, and gold is down about $10 an ounce at $1,377.

Durable Goods orders came in at -1.3% in November, this is worse than the consensus that was looking for -1.0%, but it is better than the -3.3% in October. Here’s Econoday:
Today's durables report came in mixed but core orders may be back on an uptrend. Durables orders in November declined 1.3 percent, following a revised 3.1 percent drop the prior month. However, the latest was a little more negative than analysts' expectation for a 1.0 percent fall. Weakness was led by a drop in civilian aircraft orders. However, excluding transportation, new orders for durables rebounded 2.4 percent after a 1.9 percent contraction in October. Strength in core orders was broad based.

By major industries, transportation plunged a monthly 11.9 percent in November after falling 6.3percent the month before. The decline was mainly in nondefense aircraft which plummeted a monthly 53.1 percent-essentially Boeing orders. Also, within transportation, motor vehicles slipped 2.9 percent while defense aircraft & parts rebounded 7.9 percent.

Outside of transportation, strength was widespread, led by a 5.8 percent jump in computers & electronics, with electrical equipment up 5.6 percent and with primary metals up 3.0 percent. Also up were fabricated metals, machinery, and "other."

Business investment in equipment is showing signs of strength. Nondefense capital goods orders excluding aircraft in November rebounded 2.6 percent after falling 3.6 percent the prior month. Shipments for this series gained 1.0 percent, following a 1.2 percent contraction in October.

Outside of nondefense aircraft, today's report is notably positive. It looks like manufacturing is regaining some strength in the fourth quarter.

What’s so sad about this report to me is that Boeing represents such a large segment of the report! It means that our manufacturing base is narrow as we obviously make little here in the U.S. compared to what we used to make, especially in relation to the size of our population. Any way you want to slice it, the reality is that we are best at manufacturing paper money and derivatives.

Personal Income & Outlays are supposedly up .3% in November and up 3.8% year over year. Again, here’s a summary from Econoday:
While income growth slowed in November after a sizeable October boost, consumer spending was relatively healthy heading into the holiday shopping season. As in recent months, core inflation is quite soft and still below the Fed's target range. Personal income in November rose 0.3 percent, following a 0.4 percent boost in October. The market consensus had called for a 0.2 percent improvement. However, the wages & salaries component was sluggish, edging up 0.1 percent after jumping 0.5 percent in October.

The consumer continued to open up his wallet as in recent months. Personal consumption expenditures advanced 0.4 percent, following a 0.0.7 percent gain in October. For the latest month, strength was led by a 0.7 percent monthly surge in nondurables. Only about 0.2 percentage points was price related. Durables slipped back 0.1 percent while services increased 0.4 percent.

Chain-dollar PCEs rose 0.3 percent in November, following a 0.5 percent boost the month before, suggesting healthy PCEs growth for the fourth quarter.

Year on year, personal income for November posted a 3.8 percent gain, compared to 3.9 percent in October. PCEs growth edged up to 3.8 percent in from 3.7 percent in October.

On the inflation front, the PCE price index increased 0.1 percent in November, following a 0.2 percent rise the month before. The core rate nudged up 0.1 percent after no change in October. On a year-ago basis, the headline number in November was up 1.0 percent while the core was 0.8 percent.

While personal income growth has oscillated somewhat, consumers appear to be relatively confident about the economy as spending has been on a more stable uptrend. This is good news for fourth quarter growth and for moving forward.

Weekly Unemployment Claims came in at 420,000, which was exactly the same as the week prior and it was also right on consensus:
The job market is improving but only at a moderate pace. That's the indication from initial jobless claims which for a third time in a row held little changed, at 420,000 in the December 18 week. The four-week average ended six weeks of improvement, up 2,500 to a 426,000 level that's still about 10,000 lower than the month-ago comparison.

Continuing claims fell steeply, down 103,000 to 4.064 million in data for the December 11 week and knocking another tenth off the insured unemployment rate to 3.2 percent. The four-week average of 4.156 million is about 150,000 lower than the month-ago comparison.

Month-ago comparisons in this report point to a month-to-month increase, though only a moderate increase, for December payroll growth.

So, no change is an improvement? Everyone wants to spin the positive. CNN’s headline says, “Jobless Claims Fall Again.” Riiiight… since last week was revised higher once again, up 3,000 from the original report as happens every week, then this report can be said to look better – however compared to the initial report, this was exactly the same showing no improvement. In fact, when you remove seasonal adjustments, the number rose more than 5,000. Whatever, it’s ridiculously high and is an indication that the economy STILL is losing jobs.

Consumer Sentiment and New Home Sales are released later this morning.

Everywhere you look the spin is positive and the risk trade is obviously on. It seems way too one sided to me with most people now expecting inflation on the back of money pumping. Getting strong consensus in one direction is a sure way to produce the exact opposite. The holidays will soon be over and so will wave 5 up, but not right now. The McClellan Oscillator is positive again, and until it turns negative the recent Hindenburg will likely not deliver declines, however, keep it in mind as it remains in effect through April 15th.

Markets are closed tomorrow, I hope everyone enjoys time with your families and have a Merry Christmas!