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Head on a Swivel – January 11, 2010

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Head on a Swivel – January 11, 2010


Written by thehallmarketreport - Head on a Swivel

January 10, 2010 at 11:34 pm

Economic Information – January 11, 2010

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Economic News

 There were seven US major data points released last week with pending home sales m/m showing a significant miss (-16% compared to –2.3% expectation). As well, non-farm employment was crushed on Friday with 85K loss of jobs compared to a near flat expectation. However, we have an interesting psychology occurring here as on Thursday the news was all about how important Friday’s pending employment actual/expectation number would be to the market, yet the market initially pulled back then it shook off the numbers and moved higher. For the week ISM manufacturing posted a gain (55.9 versus 54.1) and unemployment claims came in better than expected (434k versus 449K). Unemployment was steady at 10.0% versus 10.1%.  A similar story occurred in Canada as jobs fell short (-2.6% versus +20.2K) and the unemployment rate held steady at 8.5%. Big misses on material items yet no panic sell off and the VIX closes out lower. Stability and optimism has returned!?!?!?!.

This week the markets are looking for an increase in unemployment claims (438K forecast versus 434 last week). Look to Thursday as both core and total US December retail sales are announced and expected to increase for the 3rd month in a row.  The last 2 months actuals beat expectations and we wait to see if the estimates are yet again conservative. Core CPI comes out Friday morning (0.1% expectation). Expectations for each month in 2009 was for a .1% increase and 7 times the actual number was above the estimate. Canadian housing start are expected to rise slightly (161k versus 159k last week) however new building permits, a gauge of future construction activity,  are m/m expected to fall (-1.1% from 18% previous month).

 Credit Markets

Credit markets ($LIBOR, $TED and VIX) continue to remain subdued. We’ll watch these measurements to gauge banks inter-lending confidence when the world’s central banks begin to withdraw stimulus. Stay tuned.


Bonds prices continue to fall and yields continue to rise on the improving economic outlook.  Japan bonds, another safe haven call, completed the biggest weekly price last week as global markets continued to show strength.


The USD reversed last month’s gain and fell to a 3 week low against its major trading partners as an improving economy caused bids for commodity dollars (Aussie, Kiwi and Loonie) at the expense of safe-haven currencies.  In addition to the commodity demand a reverse of last weeks view that the Fed was nearing the end of the stimulus program turned around on the Dec 15-16 Fed minutes.  The Yen saw a change of management with Naoto Kan taking the helm as Finance Minister. Previous “management” preferred a stronger Yen but said he prefers a weaker yen and it is believed that he will put that philosophy into action to revive the Japanese sluggish economy.


Major commodities charts remain constructive albeit for different reasons. Gold moved up this week in hedge mode as talk of an extended stimulus program put pressure on the USD. Oil was up again as China, the world’s second biggest importer of energy product (4.1 million barrels a day) and the world fastest growing economy, recorded record Oil imports last year and projected an additional import increase of 10% this year. Natural Gas moved to its highest price in a year on a artic chill covering the Northern Hemisphere (get Al Gore another quilt!) and the reduced supplies due to problems with Norway’s Karrrstoe processing facility.

North American & Nikkei Indices

 S&P500 Index had its biggest weekly gain in 2 months and is at a 15 month high on the back on positive economic news which pushed up metal and oil prices and generally the share price of related companies. The Dow also followed trend closing up 1.8% for the week and was confirmed by the DJTA.  The Nasdaq also advanced with gainers counting for outpacing decliners 1.75 to 1.The TSX shook off disappointing employment news and moved to a 15 month high lead by gains in industrials, materials and energy stocks.  The Nikkei advanced on the week partially on the yen/$dollar losing ground which improves the local exporters outlook.

Canadian Reports

US Reports


Written by thehallmarketreport - Head on a Swivel

January 10, 2010 at 11:18 pm

The US Fed’s (we hope) “JIT” Stimulus Exit Strategy.

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As the unprecedented quantitative easing program was implemented, the Fed, like all wise market participants, has already considered the other side of the ‘trade’, that being when and how to ‘just in time’ reduce the adjusted monetary base. Just in time refers to successfully accomplishing the Fed’s dual mandate by starting to reduce the stimulus at the time that the economy is on a self-sustaining path of expansion, while inflation is still under control.  In a Wall Street Journal editorial (July 21, 2009) Fed Chairman Ben Bernanke stated that the Fed has spent significant time strategizing the accommodative policy exit.  In that article Bernanke indicated that given the current economic conditions tighter monetary policy is a ways away. However, they will have a plan in place with options available to drain reserves from the system, and they are watching the dashboard of economic indicators closely to decide when to turn off the money spigot. In further support of “getting it right” the US is not going it alone, as the G8 has asked the IMF to do the analytical work to help the governments prepare exit strategies to unwind the massive global-wide stimulus deployed to combat the recession. More recently (December 7, 2009) in a speech given at the Economic Club of Washington D.C.) discussing things on a more positive note as the financial system and the economic landscape continue to improve. There is no doubt achieving a successful exit will be most challenging.  Implementing a timely return to normal global monetary policy, from what have been some very unconventional policies, will be most difficult, as countries struggle with budget deficits, significant debt and the threat of both inflation and deflation.  For years to come policy makers will be faced with the extreme challenges of trying to calibrate practical and pragmatic exit solutions. Going forward, the overriding concern will be maintaining confidence and properly managing expectations as we now look to the horizon to determine what shape the recovery will take.

 Strategies as laid out in Chairman Bernanke’s WSJ Opt Ed (July 21, 2009)

First, the Federal Reserve could drain bank reserves and reduce the excess liquidity at other institutions by arranging large-scale reverse repurchase agreements with financial market participants, including banks, government-sponsored enterprises and other institutions. Reverse repurchase agreements involve the sale by the Fed of securities from its portfolio with an agreement to buy the securities back at a slightly higher price at a later date.

Second, the Treasury could sell bills and deposit the proceeds with the Federal Reserve. When purchasers pay for the securities, the Treasury’s account at the Federal Reserve rises and reserve balances decline.

Third, using the authority Congress gave us to pay interest on banks’ balances at the Fed, we can offer term deposits to banks—analogous to the certificates of deposit that banks offer their customers. Bank funds held in term deposits at the Fed would not be available for the federal funds market.

Fourth, if necessary, the Fed could reduce reserves by selling a portion of its holdings of long-term securities into the open market.

As always, it’s not the mechanics, its determining the timing of implementation  using best interpretations of the future economic landscape ( using the phrase“ best guess” just seems to grossly underestimate the effort that goes into these assessments).

Written by thehallmarketreport - Head on a Swivel

January 6, 2010 at 11:12 am

Factory Orders (above expectations, slack though!)- January 5, 2010

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Factory Orders came out today above expectations (1.1% versus .50%). Although the data is used for trading it tends to have a medium to low broad market impact as it includes revisions of the Durable Goods Orders report released a couple of weeks (little surprised) early and adds non-durable goods data (smaller ticket items).  Rising orders fires up the manufacturers but to see the full impact you need to look down stream to determine; 1) how much slack is there in the system (when does hiring kick in –see point 1 below), and how much is going to inventory built up versus consumer consumption). I believe that on the heels of the Durable Goods Orders the relevance of the report is found in the report when there are revisions to the durable goods, the direction of those revisions and how significant the changes are.

November’s report showed New orders for manufactured goods (up seven of the last eight months), Shipments increased (up five of the last six months), Unfilled orders decreased (down fourteen consecutive months), Inventories increased again (up two consecutive months).

Point 1 – Slack

 The Average Weekly Hours worked in both Canada and the US (see Charts) are at all or near all time lows. This means that companies with less than full time workers can absorb the slack in the system before needing to hire.

Written by thehallmarketreport - Head on a Swivel

January 6, 2010 at 11:08 am

Futures, Market & Close – Flat, Down and ?

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Futures were flat after yesterday’s big gains and markets opened down ahead of economic reports. Looking for 10:00am (eastern) release of Pending Home Sales (calling for -2.9%) and Factory Orders (o.50). Vehicle sales coming in throughout the day. Too much yesterday with disappointments today could add to the pullback.

remember that month over month comps may be tough to beat (things better recently) but year or year could blow through (things were bad in the back). Pick your trading vantage point.

stay tuned

Written by thehallmarketreport - Head on a Swivel

January 5, 2010 at 8:55 am

Economic Information + Sherriff Bernanke- January 4, 2010 (see “Head on a Swivel” for full report)

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Before we get in to the economic news a quick note: Sherriff Bernanke and his Posse are out in force this week with Bernanke, Kohn, Duke, Hoenig, Bullard, Rosengren all giving speeches or participating in panels.  A couple of key dates to watch is Bernanke on Jan 3 in Atlanta at the American Economic Association Annual Meeting and Bullard who is speaking in Shanghai to the Jiao Tong University forum on January 7 and the University of Finance and Economics on January 8.

 There were six significant US economic data points released last week and as usual the results were a mixed bag. However, the components considered most important carried the day with unemployment claims coming in at 432K (estimate 460K), Chicago PMI topping the 55.2 estimate at 60 consumer confidence within a sliver of its 53 estimate (52.9).  Even though the major items were equal to or better than expectations the US markets lost ground for the week. There were no major Canadian data points released last week; the Canadian market gained slightly.

 Major data points this week are the US ISM Manufacturing PMI which is estimated to come in at 54.2 (up from 53.6 the previous week) and the CDN Ivey PMI which is forecast less that the previous month. Tuesday sees pending home sales which is calling for a 2.9% drop m/m (this data is 35 days in arrear so we are looking at November sales). Thursday and Friday see the typical host of employment data on both sides of the border with both unemployment forecasts calling for a saw-off m/m (for data reporting purposes define “unemployed” – statistical sarcasm).

Canadian Economic News

 US Economic News

Written by thehallmarketreport - Head on a Swivel

January 3, 2010 at 1:28 pm

Economic Information – December 28 (see “Head on a Swivel” for full report)

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Last week US crude inventories missed to the downside (larger draw than expected) by a wide margin for the 3rd week in a row. The Loonie responded accordingly by eking out weekly gains. Consumer sentiment, personal spending, durable goods orders, manufacturing all came in lower than expectations while new home sales, core durable goods and unemployment claims beat estimates. The market digested the mixed bag of results and posted gain for all major US sectors (Utilities and Industrials just North of 1% ; Tech, Teleco and Materials all North of 4%). This weeks see the release of the Conference Board consumer confidence number on Tuesday with a projection above the all important 50 for the first time since September and the release of  the Case-Shiller House Price index which gives us the selling price of single-family homes from 20 metropolitan areas. With limited reports this week look for action around the economic  release times.

 Canadian Economic Reports

US Economic Reports


Written by thehallmarketreport - Head on a Swivel

December 28, 2009 at 1:00 pm

Posted in Weekly Economic Outlook

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