Once again CNBC has gone on the air and said that "a deal is near". Just as in the previous news leaks this news is being reported as someone "familiar with the situation". CNBC reports that the ‘deal’ may be announced today. And on this news futures took a spike upwards.

Oops, then reality hit. ADP jobs data (ADP attempts to preview the official Government unemployment data) came in significantly lower than expected suggesting a rise in unemployment. Then we received the non farm productivity final report. The shock in this data was unit labor costs, which was revised upwards to now be 2.6%. A rise in labor costs is yet one more sign of inflation.

So we have two bits of data this morning.. on one hand the ADP data suggests recession and gives the market added hopes again of big rate cuts coming. Then the next bit of data shows inflation peeking its ugly head again and this takes wind out of the rate cut idea. So the market is confused this morning.

At 10:00am  we receive the non manufacturing ISM data. In many aspects this data is more important than the manufacturing index as the United States is a country that is no longer a manufacturing super power. We are a service provide nation now as manufacturing has mostly gone to other countries. The ISM data we get at 10:00am reflects the business conditions for the majority of the business’s in the United States. So watch for some market moving events when this data is issued.

Futures started falling after the ADP data and the revised unit labor cost data was released. The market is still pricing in a Federal Reserve rate cut of 75 basis points on March 18th. If the market does not get what it wants watch for a significant selling event. Even if it does get a 75 point cut we could still be in for more significant downside moves as inflationary pressures will rise once again.

The Federal Reserve is aware that the credit markets in this country are falling apart at the seems, oh what is the Federal Reserve to do? Well, they can raise the white flag and signal that the problem is out of their control now. As Ben Bernanke said to the banking industry yesterday he is asking the banks to help the country by reducing principal on loans for homeowners who are close to foreclosure. Now there is an idea, I’ll stop paying my mortgage and let the banks reduce my principal so that they can keep my mortgage from going into foreclosure. What a stupid thing for the Federal Reserve chairman to say. Now you will have people who are financially healthy and making payments suddenly "slipping on their mortgage payments" in order to negotiate a lower principal with their banks.

Reading between the lines of the Fed speak lately provides us with two possibilities.

1. The Federal Reserve is warning the markets to not get their hopes up on a 75 basis point rate cut

2. The Federal Reserve has played all of their cards and are left with no more solutions. In other words, your on your own now.

Will the banking industry step up to the challenge and save the credit implosion? Don’t bet your house on it! The banks would rather hold out and wait for a Government bail out.

Two charts that I owe one of our readers:

SRS:

 

 

 

 

 

 

 

 

 

 

TWM: