Archive - Jul 2011

As expected last week's 418K in initial claims  was revised higher to 422K, but the big surprise was this week's drop in claims to 398K on expectations of 415k. The market appears to relish the fact that the streak of 16 weeks of 400K+ prints is broken, although that is quite amusing as next week's upward revision will mean the 400k+ streak will continue. Although one should let the market have its pyrrhic victory for the day. What was truly amazing is that Non Seasonally Adjusted claims plunged from 470K to 366K, a 104K move in one week! Once again the BLS lets everyone have a chuckle on their behalf. The main reason for the drop in claims was New York and Minnesota, which saw a decline in claims of 17,377 and 10,352 due to i) Fewer layoffs in the education related services, transportation, and other service industries and ii) Fewer furloughs in state government. There was also some good news in MI and OH, which saw 7K and 5K drops in layoffs due to "Fewer layoffs in the automobile industry." Offsetting the weekly improvement in these states was the surge in California claims by 20,813 due to a "Return to a five day work week" and a spike in Georgia claims by 6,567 due to "layoffs in the manufacturing, trade, service, and construction industries." Those on extended claims reversed their decline and increased by 62K in the week ended July 9. Lastly, continuing claims came worse than expected at 3,703K on expectations of 3,700K, an increase from the unrevised 3698K but a drop from the naturally upwardly revised 3720K.

Since all macro and micro news has now become redundant, with politics, specifically headlines, the sole driving force behind each and every market move, especially today when Boehner's plan is expected to pass Congress only to be deadended in the Senate, here is a complete list of what is on the docket in DC today. Keep in mind that this list is most likely to change on a moment's notice as DC comes up with "new and worse" plans virtually by the minute.

Markets witnessed a risk-averse sentiment in early European trade following lack-lustre European corporate earning releases from the likes of Credit Suisse, Telefonica, Siemens, France Telecom, among many others, together with concerns surrounding a lack of progress in the US debt negotiations. Renewed market talk that the Italian finance minister, Tremonti, is set to resign further dented sentiment, although the rumour was later denied by the Italian government. The negative news flow resulted in European equities to trade lower, whereas Bunds and Gilts traded higher, with particular widening seen in the Italian/German 10-year government bond yield spread. Bunds did come under some pressure following market talk of the ECB buying in Eurozone peripheral debt, however that failed to provide any sustainable appetite for risk. Elsewhere, strength was observed in safe-haven currencies including USD, CHF and JPY, whereas the EUR traded under pressure for a vast majority of the European session. Moving into the North American open, markets look ahead to key economic data from the US in the form of jobless claims, and pending home sales reports. In fixed income, USD 29bln 7-year Note auction is also scheduled for later in the session. Markets will also keep a close eye on US corporate earnings from the likes of ExxonMobil.

• Fed under Fire over Default Talks (FT)
• Debt-Crisis Vote Goes Down to Wire in House (WSJ)
• U.S. Rating Rests On S&P’s View of Washington (Bloomberg)
• Why the Debt Crisis Is Even Worse Than You Think (BusinessWeek)
• Japan's Industry Set for Rebound (WSJ)
• Warren Buffett Is Wrong On Taxes (WSJ)
• After the debt-ceiling standoff is resolved (blogger extraordinarie Maddy El-Erian)
• Banks Bracing for Downgrade See Little Panic (Bloomberg)
• China Regulator Targets Nonbank Entities (WSJ)
• How to Cut Taxes, Boost Revenue (RCM)

The global financial planners of the world look skilled to the common man as they juggle the manipulation of several markets with dexterity. This begs the question - "What Happens When That Juggler Gets Clumsy?" Herer's to you Fed and ECB, as TBTF banks are transformed into Too Big To Save. Reference Deutsche Bank's profit warning spoken in Sanskrit, and our apt translation.

Just two economic datapoints today, jobless claims and pending home sales, which will continue confirming deteriorating macro trends, to be largely lost in the headline barrage as today is D-Day on the Boehner plan. The last of this week's bond auction trifecta comes to a close with an auction of 7 Year bonds. Unless there is an imminent debt ceiling hike this could be the last bond auction for a long, long time.

Gold is marginally higher against most currencies today and is trading at USD 1,614.40, EUR 1,130.50, GBP 990.08 and CHF 1,294.50 per ounce. Gold is flat against the dollar but remains just less than 1% from the record nominal high reached yesterday ($1,628.05/oz).  The euro is under pressure again today and gold is 0.7% higher against the euro and is just less than 1.5% away from the record euro high of EUR 1,144.80/oz reached last Monday. Investors were made nervous by comments from chemicals major BASF, which said it saw global economic growth slowing as it posted weaker-than-expected earnings, sending its stock down 4.9%. Siemens AG, Europe's largest engineering conglomerate, warned that global economic risks were increasing and posted below forecast results. Its shares fell 1.3%. The Dow to Gold Ratio has again turned down suggesting gold may continue to outperform U.S. stocks and the DJIA, in particular, in the coming weeks. The long term target of below 2:1 remains viable.

The attorneys investigating foreclosure fraud said they were forced out. Sign the petition calling on the Attorney General's Office of Inspector General to investigate Pam Bondi's actions.

On the one week anniversary of Europe's second bailout one may be tempted to ask "what bailout" looking at the across the board deterioration in European market metrics: Spanish 10 Year bonds over 6.00% again, Italy CDS surging to 330 bps, Italy Bunds spreads at 331 just inches away from all time wides of 353 bps, EURUSD plunging by over 100 pips overnight, CAC, DAX, OMX all falling by more than 1 standard deviation as VW, chemical maker BASF, and Credit Suisse all missed earnings estimates, and, of course, numerous Italian banks (don't disappoint us UniCredit) once again on the verge of being halted after plunging by a solid 5-6%. Several reasons for the weakness: i) Italy auctioned off €8 billion in 3,4,7,10 and year fixed and floating rate notes generating weaker than expected results with the 10 year bond gross yield rising to 5.77%, the highest since 2000, and just under the all time record of 5.81%, and the 3 year gross yield of 4.80 pushing to the highest since 2008, ii) more rumors of Tremonti resigning, iii) European retail sales declining for a third month according to Markit, and iv) a decline in Euro-area economic confidence more than estimated, dropping from 105.4 to 103.2, below the consensus of 104.0. German bunds are once again well bid with September futures rising 0.2% to 129.63. But not before rumors of ECB buying peripheral bonds via the SMP spooked bunds lower, with the resulting rise being only a result of the flight from Italy. And putting a cherry on top of it all was ECB's Mersch who once again resumed the old party line, saying that fears of a "premature end to euro are unfounded." And to think that just a week earlier the ECB told us we would never have to worry about the end of the euro.

A snapshot of the European Morning Briefing covering Stocks, Bonds, FX, etc.
Market Recaps to help improve your Trading and Global knowledge

Some have said that the Fed and Washington want the value of the dollar to plummet so the nation’s debt may be repaid in cheaper dollars. Perhaps all this debt ceiling mess is just part of the grand design?  If so, then pretty soon, these Art of Defaced US Dollars would be worth more than the real dollar.

This is actually a very simple concept, although some politicians and economists unintentionally or intentionally muddy the waters ...

Relevant news by www.thetrader.se

Dramatic title I realize but look at the charts below and ask yourself if this is purely coincidence or something more telling. Regulars to this site have read posts comparing the current market to that of late 2007. From equities to credit markets to volatility and more the similarities across asset classes has been rather striking. The basis for these comparisons was the belief that at major inflection points markets are more about psychology than they are technicals and or macro data. Since human nature never changes patterns will repeatedly play out as discussed by Jesse Livermore (the following is from a book discussing his trading beliefs). He observed that human emotions collectively had major impacts on the movement of stock prices and Markets in general, ultimately creating patterns that kept repeating.”

Buried under the hysteria of a potential US default is the fact that we are stagnating but no one seems to grasp why that is. One of the reasons, a very important one, is that local and regional banks and their small business borrowers are bogged down with bad commercial real estate. In this article we discuss bank credit, banks and their real estate loans, the so-called "liquidity trap," and why the economy is not growing. It attempts to quantify the problem that local and regional banks have with their commercial real estate loans. We also explain how, why, and when the economy may grow again.