The US equity market started on a solid footing after bright earnings news from BNP Paribas and HSBC and from a positive overnight session in China (Shanghai / Hong Kong).
The US mood improved even further after the government reported a strong reading on the ISM Manufacturing Index for July; it came in at a reading of 55.5 (consensus estimate: a reading of 54.2). According to the Commerce Department there was also a surprising 0.1% advance in construction spending in June (consensus estimate: a decline in spending of 0.8%). Here, however, it must be noted that any strength on the index came purely from government building activity. In fact, construction spending data from the private sector – both in housing and nonresidential projects – was in decline.
Also providing a boost for the market were soothing words from Federal Reserve Chairman Ben Bernanke who gave a speech in South Carolina. Bernanke stated that the worst of the financial crisis had been overcome, although he cautioned that ‘… we have a considerable way to go to achieve a full recovery in our economy, and many Americans are still grappling with unemployment, foreclosure and lost savings’.
US Treasury Secretary Geithner also spoke comforting words in New York today, promising not to encumber Wall Street with red tape. In return for the favor, he asked the large banks be more forthcoming with business loans. The recent signing into law by President Obama of a 2,300-page package of financial regulatory reforms has the banking sector worried, and Geithner is trying to bring a sense of calm and stability to the industry. Today, he promised that the Obama administration ‘ ….will move as quickly as possible to bring clarity to the new rules of finance,’ adding that ‘We will not risk killing the freedom for innovation that is necessary for economic growth.’
Listless, choppy trading on low volume prevailed at the start of this week. In the tech sector, trading brought a sixth straight session of weakness for the Nasdaq 100 (the Nasdaq Composite has faired slightly better), but losses were well contained and remained minimal. Initially, things looked relatively bright for the US market as the weekend had brought a positive spin on the G-20 meeting in Toronto where an agreement was hammered out that deficits were to be slashed. This news had lifted European stock exchanges overnight.
Some encouraging news also emerged from domestic economic data releases: An increase in real, disposable income for May (up for a third straight month, rising 0.5%). According to the Commerce Department, the personal savings rate rose, suggesting consumers were putting more money aside than spending. The savings rate went up from 3.8% in April to 4.0% in May. Finally, core personal consumption expenditures (PCE) rose, up 0.2% (consensus estimates: an increase of 0.1%). Economists suggest that poor consumer spending patterns are hampering the economy; but of course, many consumers are unable to boost their spending given limited incomes and high unemployment.
The US market did not start well and then remained more or less tightly range-bound for most of the session. Volume was anemic with less than 1 billion shares traded on the NYSE for the first time in over two months.
In the Treasury market, the yield on the 10-year Treasury benchmark note fell to its lowest level since April of last year at just over 3%. Market observers suggest this indicates many investors do not like the current pace of economic recovery in the US and are thus making their bets in the bond market, shunning the stock market.
After two up-sessions, the bears came back with a vengeance today, benefitting from a negative reaction to the US government’s jobs report (the May non-farm payrolls data), see details below. A renewed focus on the debt troubles in Europe exacerbated the sell-off. Now the talk is about deteriorating economic conditions in Hungary. This is yet another European nation that is seen as a candidate for an EU bailout; to make matters worse, Hungary currently does not have plans to cut spending by means of an austerity program. Even though Hungary does not use the Euro as its currency, this news still served to pressure the Euro, which closed at a 4-year low against the US dollar.
Even though May nonfarm payrolls increased by 431,000, this pleasing headline concealed that the US labor market is still very weak. Not only did this number fail to meet consensus estimates of at least half a million new jobs (with some estimates suggesting 513,000 new payrolls), a closer look at the data shows that private employers hired a mere 41,000 additional workers, far less than the 218,000 jobs created in April. The bulk of the jobs reported in the May payrolls ‘ 411,000 jobs ‘ were attributed to the hiring of temporary census workers for the US censuses. The only silver lining in the report was that the unemployment rate dipped from 9.8% in April to 9.7% in May. The decline in the unemployment rate is not necessarily positive in this context; rather, it signals people leaving the workforce. The workforce is in fact down from 65% of the population to 62.5% (in contrast: the typical workforce level over the past twenty years has been at 67%).
The news hit retailers hard, but also impacted credit card companies and regional banks strongly. A poor labor market could discourage consumers from spending, and consumer spending is what drives the US economy to a large extent. Stocks of credit card companies and banks sagged due to concerns about unemployed consumers having trouble paying their bills.
Key economic data for the week starting June 7, 2010. Numbers shown are consensus estimates (market anticipates this value) and prior value.
Monday:
3:00 PM CONSUMER CREDIT (Apr): 0.0B / 2.0B
Wednesday:
10:00 AM WHOLESALE INVENTORIES M/M (Apr): 0.7% / 0.4%
2:00 PM FED’S BEIGE BOOK
Thursday:
8:30 AM CONTINUING CLAIMS May-29 (H): n.a. / 4666K
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.
Key economic data for the week starting May 31, 2010. Numbers shown are consensus estimates (market anticipates this value) and prior value.
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
Yesterday’s sharp rally was used to unload equities today, with the market trading in the red for most of the session. Just when investors thought it was safe to get back to buying equities again, more troubling news surfaced from Europe: Fitch downgraded Spain’s credit rating for a second time in about a month. Spain’s plan to cut budget spending could slow its economic growth. As well, the recent bailout of a regional bank by the country’s central bank was also cited as one of the reasons for the debt downgrade. Given such news, many traders may have felt uneasy holding US equities over a three-day weekend.
The US equity market is now officially in what market analysts call a ‘correction’, meaning a decline of at least 10% off a recent high. This month, the S&P 500 recorded its worst monthly performance since February 2009. The broad market ended May with a monthly loss of more than 8%, its worst monthly performance in 15 months.
According to the Commerce Department, the US economic recovery – as seen from a consumer perspective – may be slowing. Consumer spending came in flat in April and was below expectations for a rise of 0.3%. Consumer spending in April thus failed to grow for the first time in seven months. In contrast, personal income picked up 0.4% last month (consensus estimate: a rise of 0.5%). Market commentators say that consumers remain tentative and are quick to cut back spending on any sign of economic weakness. This pattern is matched by retail investors, who are likely to sell at the first sign of the market pulling back, something we have been seeing lately.
In other economic data, the University of Michigan reported its final consumer confidence numbers for May, showing a modest improvement to a reading of 73.6. Finally, the Chicago Purchasing Managers Index for May came in at 59.7, also below expectations. It must be remembered however that this index just made a five-year high in April.
Key economic data for the week starting May 31, 2010. Numbers shown are consensus estimates (market anticipates this value) and prior value.
Monday:
US Markets closed for Memorial Day
Tuesday:
10:00 AM ISM – MANUFACTURING (May): 59.4 / 60.4
CONSTRUCTION SPENDING M/M (Apr): 0.0% / 0.2%
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
Hyperinflation, the dollars demise and collapse? Will this lead to a tyrannical government takeover of our country? Or worse yet, will it result in a one-world-government arising from the ashes of America? Why are our politicians destroying America? And better yet, why are the people allowing them to destroy America? I would say that it is because of apathy. The people are content with their shopping, talking on cell phones, watching sports, and having orgasms (some of us are that is). I’ve been asking my congressman what his game plan is to get us back on track, but I get no response, unless you call a response, a standard form letter that explains how he is for a balanced budget. Of course that is not what I asked him. I asked him his solution, but he has no clue. How can we expect them to pay down our debt when they have not been able to balance the US budget in over 50 years? Because of these facts I have come to the same conclusion as Beck, that there is no way out of this mess except to devalue our money. Whether or not this is a conscious decision on their part matters not, because it is the road that we are on. We are in a catch 22 as they say. As Beck explained, we need consumer spending to spur our economy, and yet the only way to expedite that spending is to keep interest rates low, but in doing that, eventually we will experience hyperinflation. So to me the future looks pretty bleak. I do not see any way out of this unless beginning right now they stop the …
Last night (after the market was closed), the Wall Street Journal reported new troubles for Goldman Sachs – a criminal probe against the firm initiated by the US Justice Department. While some observers think one should not make too much of this case (as it might simply end without any actual charges being filed), it likely still compounded today’s market malaise, where a number of other news items contributed significantly to a bearish session:
The government released the latest GDP numbers which showed that the US economy grew slightly slower in Q1 2010 than economists had anticipated. For the January-March period, GDP was up 3.2% annualized (consensus estimate: a rise of 3.4%). In comparison, the last quarter of 2009 brought a GDP reading of 5.6%. The reason the current number was disappointing is that it does not suggest a so-called ‘V-shaped recovery’. In order for the economy to show robust growth, it would have to grow at a faster pace than it did the first three months of the year. It has been suggested that in order to cut the average jobless rate for this year by one percentage point, GDP would have to grow by 5% for the entire year 2010. The high GDP achieved in Q4 0f 2009 was achieved largely because of strong government stimulus spending. Absent that, only a significant uptick in consumer spending could drive the required growth in 2010, and some economists think this will not happen.
Also disappointing was a consumer confidence report from Reuters and the University of Michigan. While consumer confidence was up in April compared to an earlier, preliminary reading, it was still off when compared to March’s reading. In summary, both economic data reports suggest consumers are ‘recovering’ only slowly. Both reports suggest that an economic recovery is a gradual process, and some market observers say the market has expected too much, rising too far, too fast.
The huge oil spill in the Gulf of Mexico (which may turn out to be the worst such spill in US history) and the lingering debt crisis in Europe also did their part to dampen investor enthusiasm today.
Key economic data for the week starting May 3, 2010. Numbers shown are consensus estimates (market anticipates this value) and prior value.
Monday:
8:30 AM PERSONAL INCOME M/M (Mar): 0.3% / 0.0%
PERSONAL SPENDING M/M (Mar): 0.6% / 0.3%
PCE DEFLATOR Y/Y (Mar): 2.0% / 1.8%
PCE DEFLATOR Y/Y (core) (Mar): 1.3% / 1.3%
10:00 AM ISM – MANUFACTURING (Apr): 59.8 / 59.6
CONSTRUCTION SPENDING M/M (Mar): -0.5% / -1.3%
5:00 PM NEW VEHICLE SALES (Apr): 11.4M / 11.8M
Tuesday:
10:00 AM FACTORY ORDERS M/M (Mar): 0.0% / 0.6%
PENDING HOME SALES M/M (Mar): 3.7% / 8.2%
Wednesday:
8:15 AM ADP EMPLOYMENT CHANGE (Apr): 25K / -23K
10:00 AM ISM – NON-MANUFACTURING (Apr): 56.0 / 55.4
Thursday:
8:30 AM CONTINUING CLAIMS Apr-24 (H): n.a. / 4645K
INITIAL CLAIMS May-01: 440K / 448K
10:00 AM NON-FARM PRODUCTIVITY (Q1 P): 2.5% / 6.9%
10:30 AM ICSC CHAIN STORE SALES Y/Y (Apr): n.a. / 9.0%
Friday:
8:30 AM NON-FARM PAYROLLS (Apr): 180K / 162K
UNEMPLOYMENT RATE (Apr): 9.7% / 9.7%
AVERAGE HOURLY EARNINGS ALL EMPLOYEES Apr: 0.1% / -0.1%
AVERAGE WEEKLY HOURS ALL EMPLOYEES (Apr): 34.1 / 34
Last night (after the market was closed), the Wall Street Journal reported new troubles for Goldman Sachs – a criminal probe against the firm initiated by the US Justice Department. While some observers think one should not make too much of this case (as it might simply end without any actual charges being filed), it likely still compounded today’s market malaise, where a number of other news items contributed significantly to a bearish session:
The government released the latest GDP numbers which showed that the US economy grew slightly slower in Q1 2010 than economists had anticipated. For the January-March period, GDP was up 3.2% annualized (consensus estimate: a rise of 3.4%). In comparison, the last quarter of 2009 brought a GDP reading of 5.6%. The reason the current number was disappointing is that it does not suggest a so-called ‘V-shaped recovery’. In order for the economy to show robust growth, it would have to grow at a faster pace than it did the first three months of the year. It has been suggested that in order to cut the average jobless rate for this year by one percentage point, GDP would have to grow by 5% for the entire year 2010. The high GDP achieved in Q4 0f 2009 was achieved largely because of strong government stimulus spending. Absent that, only a significant uptick in consumer spending could drive the required growth in 2010, and some economists think this will not happen.
Also disappointing was a consumer confidence report from Reuters and the University of Michigan. While consumer confidence was up in April compared to an earlier, preliminary reading, it was still off when compared to March’s reading. In summary, both economic data reports suggest consumers are ‘recovering’ only slowly. Both reports suggest that an economic recovery is a gradual process, and some market observers say the market has expected too much, rising too far, too fast.
The huge oil spill in the Gulf of Mexico (which may turn out to be the worst such spill in US history) and the lingering debt crisis in Europe also did their part to dampen investor enthusiasm today.
Key economic data for the week starting May 3, 2010. Numbers shown are consensus estimates (market anticipates this value) and prior value.
Monday:
8:30 AM PERSONAL INCOME M/M (Mar): 0.3% / 0.0%
PERSONAL SPENDING M/M (Mar): 0.6% / 0.3%
PCE DEFLATOR Y/Y (Mar): 2.0% / 1.8%
PCE DEFLATOR Y/Y (core) (Mar): 1.3% / 1.3%
10:00 AM ISM – MANUFACTURING (Apr): 59.8 / 59.6
CONSTRUCTION SPENDING M/M (Mar): -0.5% / -1.3%
5:00 PM NEW VEHICLE SALES (Apr): 11.4M / 11.8M
Tuesday:
10:00 AM FACTORY ORDERS M/M (Mar): 0.0% / 0.6%
PENDING HOME SALES M/M (Mar): 3.7% / 8.2%
Wednesday:
8:15 AM ADP EMPLOYMENT CHANGE (Apr): 25K / -23K
10:00 AM ISM – NON-MANUFACTURING (Apr): 56.0 / 55.4
Thursday:
8:30 AM CONTINUING CLAIMS Apr-24 (H): n.a. / 4645K
INITIAL CLAIMS May-01: 440K / 448K
10:00 AM NON-FARM PRODUCTIVITY (Q1 P): 2.5% / 6.9%
10:30 AM ICSC CHAIN STORE SALES Y/Y (Apr): n.a. / 9.0%
Friday:
8:30 AM NON-FARM PAYROLLS (Apr): 180K / 162K
UNEMPLOYMENT RATE (Apr): 9.7% / 9.7%
AVERAGE HOURLY EARNINGS ALL EMPLOYEES Apr: 0.1% / -0.1%
AVERAGE WEEKLY HOURS ALL EMPLOYEES (Apr): 34.1 / 34
Part 2 of 2: Still arguing over whether to carry on New Labour’s plan for uk’s bankruptcy, or cut public sector spending (and the borrowing to fund it) now. The international markets have already made up their mind, and is why the UK Pound is getting worth less and less as the prospect of New Labour staying in power increases in the opinion polls. New Labour are deliberately smashing the UK Pound’s value to get the UK into the Euro by ANY means necessary. Recorded from The Daily Politics, 08 March 2010.
