Thursday, February 10, 2011

Morning Update/ Market Thread 2/10

Good Morning,

Equity futures are significantly lower this morning, the dollar is up, bonds are lower, oil and gold are lower, while most food commodities are roughly flat near yesterday’s highs. Rubber and cotton are both setting new record highs.

Weekly Jobless Claims fell significantly in the past week to 383,000. This is down from 415k (revised up to 419k), and is much lower than the 412k consensus. Comments by Econday lead me to believe that the DOL is making adjustments due to weather, however their official release does not allow enough transparency to know. I am always suspicious of large moves in statistical data:
Maybe the job market is kicking in now. That's the subtext of a very positive jobless claims report for the February 5 week that shows a steep 36,000 decline in initial claims to 383,000 for the lowest total in 2-1/2 years (prior week revised 4,000 higher to 419,000). The Labor Department said weather effects, which delay the filing and processing of claims, are unwinding in a comment that suggests the latest level may be free of distortion. The four-week average, which helps even out weekly distortions, fell a very substantial 16,000 to 415,500, a level however that is little changed from month-ago readings.

Continuing claims are clearly coming down in what is probably a positive indication of labor market strength though some of the decline undoubtedly reflects the expiration of benefits as the unemployed fall out of the insured pool. Continuing claims, in data for the January 29 week, fell 47,000 to a two-year low of 3.888 million. The unemployment rate for insured workers is unchanged at 3.1 percent. In unadjusted data for the January 22 week, the total number of claims rose more than 106,000 to 9.406 million.

Markets aren't reacting much to this report, at least initially though the dollar is firming. One week's data is only one week's data and improvement will have to continue before meaningful gains can be expected for February payrolls.

It’s difficult to see through the noise of this report, the big picture is that this number needs to be legitimately below 350k for it to indicate that jobs are being created. That said, this is the lowest number reported by the DOL in the past 2.5 years.

Wholesale Trade is released at 10 Eastern this morning, the “Fed’s” balance sheet and money supply stats will be released late this afternoon.

Rates on credit default swaps across Europe are rising again this morning showing underlying debt stress across Europe. Ireland and Portugal are moving the most this morning.

The MSCI Emerging Markets Index got pounded overnight for 1.8%, producing their sixth loss in a row. Emerging markets often lead global markets as they are a “risk on” trade, in the same manner as small caps. Below is a nine month chart of EEM, the Emerging Markets ETF… note the lower lows, a clearly broken uptrend, and price that is now below the lower Bollinger band:

Transports are another index that are failing to make new highs. This is a major non-confirmation of higher prices in the DOW Industrials and SPX large caps. These types of non-confirmations are almost always found near tops of long term significance. Note how the Transports have failed to get back above the 50 day moving average:

Contrast those charts to this chart of the SPX below. Note the waning momentum in the oscillators and lower peaks in RSI despite rising price:

The markets look very sick to me on a technical basis, but we must always consider the fundamental landscape along with the technical picture. While we are a debt saturated nation, we are also a POMO nation where the private banks who call themselves the “Fed” are attempting to paint a money façade on the economy and markets. Everywhere I look I see monetary expansion masquerading as apparent “growth.”

Meanwhile Egyptian workers are heading out on strike demanding more pay so that they can afford to eat. Guess what, spiking food commodity prices have yet to make it all the way through to the final food product and they are still rising.

Back in the U.S., our infrastructure continues to fall apart, 6 killed in their homes when a natural gas line explodes. What maintenance wasn’t being done there?

And a married Congressman from New York is forced to resign after posting the following pictures on Craigslist along with an ad where he is fishing for women.

Gee, that’s nice. No breakdown in morals there, nice example there Congressman.

And to think that I used to be waiting for Congress to do the right thing for the people and take back the power of money creation… how admittedly naïve that wish was. No, Congress won’t do the right thing until the people force them to. Events are rapidly approaching that will shake Americans out of their slumber.