Home > Uncategorized > 2011/09/01: QuickPost: Not Just Europe & DC: Staredown at Data Gulch

2011/09/01: QuickPost: Not Just Europe & DC: Staredown at Data Gulch

The cowboy showdown intense stare prior to the shooting might be a bit of a stretch. Yet, it does seem that the economic data becoming more balanced has allowed the equities to rally in spite of overall weak cyclical global economic background. There is the fudge of the last few days of Greek banks merging creating a more stable environment, and the fact the US has contained its own fiscal dilemma by punting the major decisions over to the Congressional Super Committee. What an image that is… Will they be wearing capes?

However, as we noted in our Brief Update yesterday, it feels like we are back to fed-centric “bad news is good news” environment. Consistently downbeat economic indications from the Fed since Mr. Bernanke’s speech at Jackson Hole last Friday has encouraged visions of liquidity expansion sugarplums to dance in the heads of the equity bulls. Might Bernanke Claus show up with some further liquidity expansion goodies sooner than previously anticipated? For all of the speculation on that, we frankly doubt it.

It runs against the current political environment, and even what is now the obvious significant dissension within the FOMC based upon Tuesday’s meeting minutes release. As such, even though the anticipation that worse than expected economic conditions might foment more immediate further support from the Fed, that leaves quite a bit more of the near-term influence back on the economic data.

And it seems to be at somewhat of a standoff. No surprise therefore that the equities are churning sideways since reaching somewhat more significant resistance yesterday morning. It is also of note that the govvies remained focused on the weaker overall background, and have not backed off very much from their equally important higher resistance areas.

As the economic report and event calendar indicated from the top of the week, today was going to be the key day for broader economic data. That is not to diminish the potential impact of the US Employment report tomorrow. Yet it comes along as an isolated bit of data, due to the lack of anything meaningful being released elsewhere in the world.

And there are some very interesting cross currents in the economic data today. Which is likely why the markets are on hold for the most part in front of tomorrow’s US Employment report. On one hand, the still important global Purchasing Managers Indices of Manufacturing have come in weak once again. Most of Europe and the UK remained below the important 50.0 level, with Germany and even China hovering not very far above it. That leaves anticipation of the projected weakening of the US ISM Manufacturing Index to somewhat below 50.0 from modestly above it last month as a potential trigger for a further equities selloff.

Yet the equities have not pulled back very much from the push to a new high for the recovery from their recent sharp selloff lows. And that is in spite of the expectation that there will also be a still pernicious US Weekly Initial Jobless Claims report this morning, weakening Non-Farm Productivity and still soft indications for Construction Spending. It would all seem to be a case of “bad news is good news”.

However, two important items can also buffer any of the other economic data weakness this morning. Those are the upbeat expectations for the monthly ICSC Chain Store Sales, and the fact that US Vehicle Sales are expected to show some good numbers. And there you have it, in the near term the equities might care more about cars and clothes than the fact that almost the entire global manufacturing economy is slipping into a mildly recessionary indications. We suppose the market needs to respect the degree to which the ability of consumer sales to generate profit margins is still a key driver for the equities being okay and spite of general economic, fiscal and social conditions weakening around the obvious retail sales focus.

Of course, there is also the degree to which the real driver for any return to radically weaker conditions in the equities (and commensurate strength in govvies and Gold) actually rests with Europe. However, that also seems to be nicely fudged at present by the review of the Greece, Inc. books by the auditors. While the initial hints on that are pretty negative, we suppose there is some hope that understanding the true scope of the problem will lead to a solution. Frankly, we remain skeptical. Anyone who really thinks that situation will end well should take a look at Tuesday’s post (if you have not done so already) for the reasons it is more likely to remain vontentious, and likely more than a bit intractable.

EXTENDED MARKET IMPLICATIONS

Here as well things remain much the same as Tuesday’s post, and we refer you back to that for the more extensive technical trend observations. September S&P 500 future crossing back above 1,200 yet still stalling into the 1,230 Tolerance of key 1,216-24 resistance is an important sign.

September T-note future stalling at still no better than roughly the 130-20 extreme panic high from back at the end of 2008 leaves that is key resistance. There is one thing that has evolved just a bit from previous it is the predictable upward drift in the oscillator resistance for the German Bund future as the 41-week moving average moves higher. That key trend resistance is now up from 130.50 a couple weeks ago to 130.80 this week..

As noted previous, the classical forgein exchange relationships seem to not apply. The US dollar has shown weakness near recent .7340 congestion lows with equities sharply lower, yet has also held very well into that area on the recent equities recovery. And it is now recovering over the past couple of days even as the equities push higher; a significantly counterintuitive move. However, that is reasonable in the wake of concerns about Europe dropping EUR/USD down into its 1.4300-1.4250 interim support.

October Crude Oil future stalling at no better than its 89.50-90.00 resistance is no surprise in spite of the equities strength, due to certain external factors like the potential for Libyan oil to return to production across time. And while the October Gold future remains highly active, it is important to note that last week’s weekly chart 1,849-65 DOWN Closing Price Reversal (CPR) and its Tolerance factor is the lower resistance in addition to the 1,886 major Runaway Gap Objective it capitulated back below after temporarily overrunning it at its new all-time high early last week.

Thanks for your interest.

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  1. September 1, 2011 at 9:25 AM

    Continuing our focus from earlier this morning on the economic data deadlock, some might ask why US Weekly Initial Jobless Claims remaining above 400,000, Non-Farm Productivity eroding more than expected, and Construction Spending dropping precipitously would leave the equities bid and the govvies under pressure? Could it simply be more of the gaming of the Fed on the partial reinvigoration of a “bad news is good news” psychology?

    Well, actually, it’s a bit more than that insofar as the numbers are a bit less conclusive than the headline figures would suggest. No doubt US ISM Manufacturing not falling below 50.0 was among the most important obvious influences. Yet even the drop to -1.3% in Construction Spending was offset by the equal and opposite upgrade to last month’s figure (from +0.20% to +1.6%.) And as the weaker Productivity figure was based in good measure on a more significant than expected increase in Unit Labor Costs, on a certain level that is no bad thing for the economy.

    It all remains a very mixed bag, shifting the focus to tomorrow’s US Employment report… and as noted previous, even more so to the situation in Europe that is seeming to fray at the edges once again. Which becomes even more important with the US out on Monday for the Labor Day holiday weekend just as all of the international Purchasing Managers Indices of Services are going to be released.

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