The US market just suffered through the worst May in 60 years, and early bullish June trading quickly gave way to more bearishness. Initially, better-than-expected data on construction spending and ISM manufacturing (see below) provided a boost, but by the closing bell, bearishness again won the day. More bad news from Europe surfaced on the heels of last Friday’s downgrade of Spain’s debt – for instance, a new report from the EU Central Bank suggesting that European banks could face write-downs to the turn of $240 billion. Also contributing to the malaise were geopolitical tensions (Korea, Israel), the failure of BP to stop the oil leak in the Gulf of Mexico, and warnings from China’s officials about the housing bubble in that country.

Among the economic news released today in the US, the Commerce Department reported that April construction spending had increased by largest amount in close to ten years. Construction spending in that month was up 2.7% while economists had predicted it would come in flat. The Institute for Supply Management reported that the manufacturing index it maintains was down, sliding from 60.4 in April to a level of 59.7 in May (consensus estimate: a reading of 59). Economists commented by suggesting that the European fiscal crisis did not appear to have harmed US manufacturers, at least not for the time being. At the same time, more and more economists appear to concede that the US economy is not really growing at this time and that the emergence from the current recession is much weaker than typically seen at the end of a recession.

Canada today became the first Group of Seven nation to raise interest rates since the global financial meltdown in 2008, with the Bank of Canada boosting its key interest rate by a quarter point to half a percent. Canada appears to have weathered the recession better than many developed countries and its economy grew by more than 6% over the first quarter of 2010. Notably, Canada has not shown the same kind of crippling problems in its mortgage sector as the US; it has also avoided a banking crisis like the one seen in the US. In fact, the country has recently tightened some mortgage lending rules in order to avoid a real estate bubble as the very low rates have contributed to a hot housing market in many areas. Consumer spending has also been on the increase, another reason for the rate hike today. Other G7 countries are: the United States, the United Kingdom, France, Germany, Italy and Japan.

Wednesday:
	10:00 AM PENDING HOME SALES M/M (Apr): 6.0% / 5.3% 5:00 PM NEW VEHICLE SALES (May): 11.4M / 11.2M

Thursday:
	8:15 AM ADP EMPLOYMENT CHANGE (May): 55K 32K 8:30 AM CONTINUING CLAIMS May-22: n.a. / 4607K INITIAL CLAIMS May-29: 450K / 460K NON-FARM PRODUCTIVITY (Q1 F): 3.6% / 3.6% 10:00 AM FACTORY ORDERS M/M (Apr): 1.5% / 1.1% ISM – NON-MANUFACTURING (May): 55.8 / 55.4 10:30 AM ICSC CHAIN STORE SALES Y/Y (May): n.a. / 0.8%

Friday:
	8:30 AM NON-FARM PAYROLLS (May): 500K / 290K UNEMPLOYMENT RATE (May): 9.8% / 9.9% AVERAGE HOURLY EARNINGS ALL EMPLOYEES M/M (May): 0.1% / 0.0% 8:30 AM AVERAGE WEEKLY HOURS ALL EMPLOYEES (May): 34.1 / 34.1 MANUFACTURING PAYROLLS (May): 35K / 44K

By noreply@noemail.com (HGH Press)

Speaking of shaky bulls, Richard Russell – the widely-known author of the Dow Theory market timing system which has been published since 1958 – has issued a sell signal ‘on everything liquid’. He says ‘there’s a HARD RAIN coming’ and that by the end of the year, people ‘won’t recognize the country’.

US market regulators, the SEC, announced new measures today, hoping to prevent another ‘flash crash’. A six-month trial with new market breakers rules is being proposed, effective mid-June. Should any stock in the S&P 500 rise or fall 10% or greater within a five-minute span (between 9:45 a.m. and 3:35 p.m. EST), that issue would be halted for five minutes.

Among the US economic data released today, the Commerce Department said housing starts were up 5.8% in April, exceeding expectations. At the same time, applications for new building permits declined. Meanwhile, wholesale inflation was down 0.1% in April but core inflation was up 0.2%. Tomorrow will see the release of the minutes from the Fed’s last FOMC meeting. Investors will be looking for clues as to when and by how much the Fed is likely to raise the federal funds rate.

Wednesday:
	8:30 AM CPI M/M (Apr): 0.1% / 0.1% CPI M/M (core) (Apr): 0.1% / 0.0% CPI Y/Y (Apr): 2.4% / 2.3% CPI Y/Y (core) (Apr): 1.0% / 1.1% 2:00 PM FED MEETING MINUTES

Thursday:
	8:30 AM CONTINUING CLAIMS May-08: n.a. / 4627K INITIAL CLAIMS May-15: 440K / 444K 10:00 AM PHILADELPHIA FED (May): 21.8 / 20.2 LEADING INDICATORS M/M (Apr): 0.2% / 1.4%

By noreply@noemail.com (HGH Press)

This truly erratic and in many ways unprecedented market behavior, along with the fact that we just saw yet another market crash in the span of only a few years (where crashes typically only take place many years apart) has prompted several investigations into electronic / algorhythmic trading. It has also sparked heated discussions about machines taking over Wall Street; and finally, it has caused more mistrust among the general public, already wary and weary of Wall Street bailouts and bonuses.

The discussion about what exactly triggered Thursday’s crash (and very quick snap-rallies) dominated the press today. Not surprisingly then that even a good news report regarding the US job market was largely overlooked. According to the Labor Department, the US economy added 290,000 jobs in April, significantly beating expectations. In fact, this was the largest monthly jump in employment in four years. The fact that the jobless rate however climbed to 9.9% (up 0.2% from the last jobs report) was explained by the fact that a better economy is motivating more people to start looking for work again.

In Europe, Germany’s parliament approved that countries share of the bailout package for Greece, but this news was also not enough to overcome the suddenly extremely bearish mood on Wall Street. While Greece’s debt problem may therefore be contained at least for a while, the concern of a contagion to other European countries is alive and well. One market observer was quoted as saying that ‘You’re not concerned about the kid with the cold, but how he spreads it to the rest of the class’.

Tuesday:
	10:00 AM WHOLESALE INVENTORIES M/M (Mar): 0.5% / 0.6%

Wednesday:
	8:30 AM GOODS & SERVICES TRADE BALANCE (Mar): -$39.9B / -$39.7B 2:00 PM TREASURY BUDGET (Apr): -$20.0B / -$65.4B

Thursday:
	8:30 AM CONTINUING CLAIMS May-01: 4590K / 4594K INITIAL CLAIMS May-08: 440K / 444K IMPORT PRICE INDEX M/M (Apr): 0.8% / 0.7%

Friday:
	8:30 AM RETAIL SALES M/M (Apr): 0.3% / 1.9% RETAIL SALES (X-AUTOS) M/M (Apr): 0.5% / 0.9% 9:15 AM INDUSTRIAL PRODUCTION M/M (Apr): 0.6% / 0.1% CAPACITY UTILIZATION (Apr): 73.7% / 73.2% 9:55 AM MICHIGAN CONSUMER SENTIMENT (May P): 73.5 / 72.2 10:00 AM BUSINESS INVENTORIES M/M (Mar): 0.4% / 0.5%

By noreply@noemail.com (HGH Press)

This truly erratic and in many ways unprecedented market behavior, along with the fact that we just saw yet another market crash in the span of only a few years (where crashes typically only take place many years apart) has prompted several investigations into electronic / algorhythmic trading. It has also sparked heated discussions about machines taking over Wall Street; and finally, it has caused more mistrust among the general public, already wary and weary of Wall Street bailouts and bonuses.

The discussion about what exactly triggered Thursday’s crash (and very quick snap-rallies) dominated the press today. Not surprisingly then that even a good news report regarding the US job market was largely overlooked. According to the Labor Department, the US economy added 290,000 jobs in April, significantly beating expectations. In fact, this was the largest monthly jump in employment in four years. The fact that the jobless rate however climbed to 9.9% (up 0.2% from the last jobs report) was explained by the fact that a better economy is motivating more people to start looking for work again.

In Europe, Germany’s parliament approved that countries share of the bailout package for Greece, but this news was also not enough to overcome the suddenly extremely bearish mood on Wall Street. While Greece’s debt problem may therefore be contained at least for a while, the concern of a contagion to other European countries is alive and well. One market observer was quoted as saying that ‘You’re not concerned about the kid with the cold, but how he spreads it to the rest of the class’.

Tuesday:
	10:00 AM WHOLESALE INVENTORIES M/M (Mar): 0.5% / 0.6%

Wednesday:
	8:30 AM GOODS & SERVICES TRADE BALANCE (Mar): -$39.9B / -$39.7B 2:00 PM TREASURY BUDGET (Apr): -$20.0B / -$65.4B

Thursday:
	8:30 AM CONTINUING CLAIMS May-01: 4590K / 4594K INITIAL CLAIMS May-08: 440K / 444K IMPORT PRICE INDEX M/M (Apr): 0.8% / 0.7%

Friday:
	8:30 AM RETAIL SALES M/M (Apr): 0.3% / 1.9% RETAIL SALES (X-AUTOS) M/M (Apr): 0.5% / 0.9% 9:15 AM INDUSTRIAL PRODUCTION M/M (Apr): 0.6% / 0.1% CAPACITY UTILIZATION (Apr): 73.7% / 73.2% 9:55 AM MICHIGAN CONSUMER SENTIMENT (May P): 73.5 / 72.2 10:00 AM BUSINESS INVENTORIES M/M (Mar): 0.4% / 0.5%

By noreply@noemail.com (HGH Press)

The president of the Federal Reserve Bank of Kansas City was outvoted for a third consecutive time. He had suggested the Fed remove the ‘extended period’ pledge, fearing that rates still at emergency levels could lead to speculative excesses – bubbles in asset classes such as stocks, bonds, and commodities. The Fed however decided to hold rates at current, record low levels suggesting inflation is currently contained and likely to stay subdued.

After the bell, Dow component computer maker Hewlett-Packard announced its intention of expanding into the smart phone market. It will buy phone maker Palm for $1.2 billion in cash, representing a 23% premium to Palm shares as of today’s closing price. There had been much speculation about the future of Palm, which has struggled in recent months. Apple, Research in Motion, and Lenovo had all been named as potential acquirers.

Notable about today’s recovery action is that it occurred in spite of Standard & Poor’s downgrading Spain’s debt (following downgrades of Greece and Portugal the other day). US market participants appear to have shrugged this off entirely, perhaps suggesting the bulls have regained composure after yesterday’s sell-off. Early on today, the EU suggested Greece would receive its bailout money, allowing the country to cover some $11 billion in urgent debt payments by May 19. Germany also issued reassuring words, saying that its portion of the huge bailout for Greece could be approved next week. All in all, it appears that bailout money continues to flow, the Fed has promised to keep rates low, and earnings continue to come in positive (for instance, Dow Chemical was one of the key players reporting strong earnings today).

Thursday:
	8:30 AM CONTINUING CLAIMS Apr-17 (H): 4613K / 4646K INITIAL CLAIMS Apr-24: 442K / 456K 10:30 AM CHICAGO FED NAT.ACTIVITY INDEX (Mar): n.a. / -0.6%

Friday:
	8:30 AM GDP (annualized) (Q1 A): 3.4% / 5.6%GDP DEFLATOR (annualized) (Q1 A): 0.9% / 0.5% EMPLOYMENT COST INDEX (Q1): 0.5% / 0.5% 9:45 AM CHICAGO PMI (Apr): 60.0 / 58.8 9:55 AM MICHIGAN CONSUMER SENTIMENT (Apr F): 71.0 / 69.5

By noreply@noemail.com (HGH Press)

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The president of the Federal Reserve Bank of Kansas City was outvoted for a third consecutive time. He had suggested the Fed remove the ‘extended period’ pledge, fearing that rates still at emergency levels could lead to speculative excesses – bubbles in asset classes such as stocks, bonds, and commodities. The Fed however decided to hold rates at current, record low levels suggesting inflation is currently contained and likely to stay subdued.

After the bell, Dow component computer maker Hewlett-Packard announced its intention of expanding into the smart phone market. It will buy phone maker Palm for $1.2 billion in cash, representing a 23% premium to Palm shares as of today’s closing price. There had been much speculation about the future of Palm, which has struggled in recent months. Apple, Research in Motion, and Lenovo had all been named as potential acquirers.

Notable about today’s recovery action is that it occurred in spite of Standard & Poor’s downgrading Spain’s debt (following downgrades of Greece and Portugal the other day). US market participants appear to have shrugged this off entirely, perhaps suggesting the bulls have regained composure after yesterday’s sell-off. Early on today, the EU suggested Greece would receive its bailout money, allowing the country to cover some $11 billion in urgent debt payments by May 19. Germany also issued reassuring words, saying that its portion of the huge bailout for Greece could be approved next week. All in all, it appears that bailout money continues to flow, the Fed has promised to keep rates low, and earnings continue to come in positive (for instance, Dow Chemical was one of the key players reporting strong earnings today).

Thursday:
	8:30 AM CONTINUING CLAIMS Apr-17 (H): 4613K / 4646K INITIAL CLAIMS Apr-24: 442K / 456K 10:30 AM CHICAGO FED NAT.ACTIVITY INDEX (Mar): n.a. / -0.6%

Friday:
	8:30 AM GDP (annualized) (Q1 A): 3.4% / 5.6%GDP DEFLATOR (annualized) (Q1 A): 0.9% / 0.5% EMPLOYMENT COST INDEX (Q1): 0.5% / 0.5% 9:45 AM CHICAGO PMI (Apr): 60.0 / 58.8 9:55 AM MICHIGAN CONSUMER SENTIMENT (Apr F): 71.0 / 69.5

By noreply@noemail.com (HGH Press)

In contrast, there was weakness in the financial sector, with names such as Goldman Sachs, JPMorgan Chase, Bank of America, and Citigroup all lower. Citigroup was off more than 5% on the news the Treasury Department plans to sell as many as 1.5 billion shares in order to recoup bailout money. The financial sector was down in general due to uncertainty over the pending derivatives reform bill, with a potentially tougher bill gaining more support after the SEC recently filed civil fraud charges against Goldman Sachs. One of the tenets of the proposed bill is to move complex derivatives deals onto trading platforms, out in the open so to speak. Troubles for Goldman Sachs are not over, as some of its executives and traders will face questioning on Tuesday by a Congressional panel.

In the M&A sector, Hertz Global Holdings announced an agreement to purchase Dollar Thrifty Automotive Group for roughly $1.17 billion in cash and stock. Hertz is currently the world’s largest car rental company (by number of locations), and this acquisition will boost the number of Hertz’s global locations to 9,800.

In Europe, the Greek bailout saga continues, with speculation that Germany may balk at guaranteeing an early release of bailout funds.

Tuesday:
	9:00 AM S&P CASE SHILLER INDEX (Feb): n.a. / 145.3 S&P CASE SHILLER Y/Y (Feb): 0.8% / -0.7% 10:00 AM CONF.BOARD CONSUMER CONFIDENCE (Apr): 53.7 / 52.5 RICHMOND FED MANUF. INDEX (Apr): 9.0 / 6.0

Wednesday:
	2:15 PM FED RATE ANNOUNCEMENT (Apr): 0.25% / 0.25%

Thursday:
	8:30 AM CONTINUING CLAIMS Apr-17 (H): 4613K / 4646K INITIAL CLAIMS Apr-24: 442K / 456K 10:30 AM CHICAGO FED NAT.ACTIVITY INDEX (Mar): n.a. / -0.6%

Friday:
	8:30 AM GDP (annualized) (Q1 A): 3.4% / 5.6%GDP DEFLATOR (annualized) (Q1 A): 0.9% / 0.5% EMPLOYMENT COST INDEX (Q1): 0.5% / 0.5% 9:45 AM CHICAGO PMI (Apr): 60.0 / 58.8 9:55 AM MICHIGAN CONSUMER SENTIMENT (Apr F): 71.0 / 69.5

By noreply@noemail.com (HGH Press)

The press notes a number of catalysts for today’s slide: (1) Renewed concern that consumers are not borrowing enough, as the newest data released by the Federal Reserve showed that consumer borrowing was off by $11.5 billion in February (consensus estimates: an increase in borrowing by $500 million). (2) News from Europe reigniting fears that Greece could still default on its debt as Germany’s Commerzbank has concerns about Greek bonds. (3) A general sense that the market has risen too far, too fast and that some profit taking is to be expected after a virtually uncorrected climb over the past 13 months. (4) The potential for higher interest rates which could stall the economic recovery. For instance, according to the Mortgage Bankers Association, the average rate on 30-year, fixed-rate mortgages rose to 5.31% last week (prior week: 5.04%). This ties in with a general realization that a true economic recovery has its price – higher borrowing costs.

In a move to better track high-frequency trading strategies and to detect manipulative algorithms, the US Securities and Exchange Commission (SEC) announced potential plans to assign identification codes to high-frequency traders. The SEC will vote on this proposal on April 14. Some US lawmakers have however questioned the necessity of putting a higher regulatory burden on brokers, saying that they question whether traders who turn over thousands of shares in milliseconds would hurt returns for long-term investors.

Thursday:
	8:30 AM CONTINUING CLAIMS Mar-27: 4618K / 4648K INITIAL CLAIMS Apr-03: 440K / 442K 10:30 AM ICSC CHAIN STORE SALES Y/Y (Mar): n.a. / 3.7%

Friday:
	10:00 AM WHOLESALE INVENTORIES M/M (Feb): 0.4% / -0.1%

By noreply@noemail.com (HGH Press)