DAILY MARKET COMMENTARY
February 2, 2012
Closing Comment:
Markets put in a pretty quiet day. Interest rates were flat out to the long end of the yield curve. The 2-year closed at 0.22%, the 5-year at 0.71% and the 10-year at 1.82%. The 30-year remains stuck at the 3.00% level.
Stocks hovered around the unchanged level with Dow a bit lower while the NASDAQ was a bit higher. Tomorrow brings the Nonfarm Payroll report. Maybe that will stir the pot a little.
Chairman Bernanke testified before Congress today. He basically patted himself on the back for his good work in keeping the economy out of the ditch. Then he nagged Congress to get its fiscal house in order. He did say that he wouldn’t sacrifice his inflation target to gain more employment. Well, that’s something.
Morning Comment:
Initial Jobless Claims for last week came in at 367k. This was a little below forecast and a relief to those who feared that we were on the road back to the 400k area. We also heard from Challenger on job cuts for January. Announced job cuts did increase but at a pace below what is typical for January. January is usually the biggest bump for job cuts as retailers lay off staff that had been hired for the Christmas season. I always have a little problem with this report as a plus sign is not good news. Challenger did add that they felt that layoffs in the government sector were going to continue at a brisk pace throughout 2012 as governments at all levels deal with their budget deficits.
Facebook is launching an IPO sometime in the 2nd Quarter. The company is thought to be worth something in the area of $100 billion. Facebook has 3,200 employees. And therein folks lies the problem. We have a bunch of people unemployed in this country. Yet it only takes 3,200 people to produce a huge market value.
Yesterday saw some rather blasé economic news. The ADP forecast for tomorrow’s nonfarm payroll is 170k. This was below forecast and while it is still a positive number it points to a somewhat subdued Nonfarm Payroll report in the morning. The National ISM came in at 54.1. Headlines proclaimed that this is the best reading in 7 months. True, but they don’t add that the January 2011 reading was 59.9 and that proved to be the high water mark for all of last year. Car sales bucked the trend with better-than-expected growth for the month. There is a lot of fist-bumping going on about how great our car manufacturers are doing. Let’s ask all of the retirees and vendors of GM and Chrysler how they feel about the abrogated contracts and reduced payouts. Granted, the overhead per car had gotten ridiculous. Bankruptcy has a nice way of reneging on promises. Look at American Airlines. In bankruptcy AMR is talking about cutting retirement benefits and laying off 13,000 workers.
The Euro had been slipping earlier. The Greek debt deal is still at an impasse. This had been pulling European stocks (and by extension U.S. stock futures) lower. The slightly better news on jobless claims has stopped the Euro selling and brought stocks back to unchanged. Europe, and to a lesser extent the U.S., enjoyed big stock market rallies yesterday. As Mr. Miyagi says, “Risk on, risk off”. So far in 2012 the ‘risk on’ trade is working the best. Yesterday’s rally was lifted by the idea that manufacturing as measured by all of these purchasing manager’s surveys appears to be expanding. I would remind the enthusiasts that these are just surveys.
Tomorrow morning brings us the January Nonfarm Payroll report. The guess is that the rate will stay at 8.5% and private payrolls will grow by 163k, down from the 212k reading in December.
Interest rates remain stable as they bump along at record low yields. The 2-year is o.22%, the 5-year is 0.72% and the 10-year is 1.83%. The Treasury announced yesterday that they will be selling 3, 10 and 30-year paper at auction next week.
Jeff Smith
Director of Investment Sales
SunCorp
jsmith@suncorp.coop
Jeff's comments and insights, based on his professional expertise and the knowledge he has acquired observing the U.S. economy and global markets, are offered as his own personal observations and opinions, and not necessarily reflective of those held by SunCorp, our board or member credit unions. Please do not respond to this message as this e-mail address is un-monitored.
MONTHLY MARKET COMMENTARY
January 2012
Last month, we talked about pre-financial crisis (2008) conditions and how we’ve just now crawled back those levels. Over a longer horizon, current conditions feel reminiscent to the 1970s, though for more specific “I remember whens”, I’ll defer to our resident expert Geoff Smith, who was an adult during at least part of that decade. High unemployment, sluggish growth, and loads of government regulation were some of the “highlights” of that era. Clearly, a lot of things have changed dramatically since then, but we are currently grinding through a business cycle of weak labor markets, low growth, and more government intervention......click here
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