July 3rd 2008 - Stock Market Summary

A short trading day with very light volume. But it was not void of significant economic data. Jean-Claude Trichet, president of the European Central Bank this morning raised their benchmark lending rate by 25 basis points to 4.25%. Mr. Trichet has been threatening to do exactly this for some time as the European nations have been facing a significant jump in inflation with the latest figures coming in at 4% year over year inflation growth. The action taken by Trichet this morning was expected, and as such the currency markets had already anticipated this event and we saw a "sell the news" scenario play out with the US dollar. But in this case it was an inverse reaction for the US dollar was being sold leading into the announcement from the ECB and following the announcement the dollar rose. I still foresee the US dollar continuing to go lower, and setting new all time lows before the fall season arrives in the United States.

Also this morning was the monthly unemployment data. The job losses are still mounting and the weekly initial claims (the number of people filing for unemployment for the first time) rose to 404,000. What is the most amusing is that over the past 5 months analysts on CNBC would say "there can’t be a recession with initial claims still under 400,000. After the data was released this morning the first analyst interviewed on CNBC said that he was not worried about a recession because it was under 450,000. Amazing how these analysts who have been claiming that the economy was going to improve now raise the bar once their original bar is met.

Lisa and I have been, and still are, predicting a long recession.

The monthly ISM data for the service sector, which is the majority of the US economy declined as well in this mornings monthly release. Important data within the report is declining employment, declining orders, and rising prices.

 

 

 

 

 

 

 

(Source: Institute for Supply Management)

Crude oil finished out the day near the record highs. Gasoline prices at the pumps here in the United States have been held back somewhat leading into the holiday weekend. I am confident that the major oil companies are purposely keeping gasoline prices at their current levels, in spite of the rising crude oil prices for psychological reasons. With the holiday weekend upon us now, if gasoline prices were allowed to rise in step with the crude oil prices it would have created a substantial ’sticker shock’ effect, and resulted in less demand for gasoline and would have impacted even further the companies who rely on the summer holiday traffic. It would not surprise me that the oil companies were under some pressure from the White House to delay raising gasoline prices until after the holiday. I guess this thesis will be proven or debunked in the coming weeks. However, I suspect we will see gasoline prices rise sharply soon after the holiday is over.

 

 

 

 

 

 

 

 

(Crude Oil - 5 minute chart)

 

We did not initiate any new trades today. The market remains caught in the Twilight Zone at this time with the Dow and the S&P 500 indices at different levels with respect to their support and resistance. The US markets are closed on Friday in observance of the US independence holiday.

I want to thank everyone for the nice comments and emails I received for my commentary last evening. Over the holiday weekend we will be discussing our new web site plans, along with other market observations that may develop in the world markets.

We wish everyone a safe and happy July 4th holiday.

Market close

An uneventful day in the end. Somewhat distorted with the Dow up 73 points and the Nasdaq down 6 points. The S&P ended flat at up 1. A tropical depression has formed in the Atlantic and some nervousness is building in the energy sector and we saw oil rising a bit when the National Hurricane Center  issued the news on the tropical depression.

A full wrap up later tonight.

Reminder

Remember that the US markets close today at 1:00 pm (US EST) today.

June ISM Non-Manufacturing Data

*JUN ISM NON-MANUFACTURING COMPOSITE: 48.2 V 51.0E
- Non-Mfg Prices Index: 49.9 v May 51.7
- Employment: 43.8  v May 48.7
- New Orders Index:  48.6 v May 53.6
- Prices Paid: 84.5  v May 77.0

Anyway you look at this monthly data it is bad. The services index makes up a significant portion of the US economy. And it is still retracting. Employment figures contained within the report indicate that there will be much more job losses coming in the months ahead.

June Unemployment Data

I don’t have any charts with this new data incorporated yet, but it is important to note that the data is showing us that the employment situation here in the United States is still deteriorating. And the deterioration appears to be picking up the pace.

For the past 8 months, there have been those who fail to realize that the United States is in a recession and kept saying "as long as weekly initial claims remain under 400K then you can’t have a recession". This morning we got initial claims over 400K, and what was the first thing someone said on CNBC? "You can’t have a recession unless the initial claims are over 450K".

The data worsens and those who refuse to acknowledge the economy is in bad shape keep raising their threshold. It is like changing the rules of a game in the middle of the game.

Employment in the US is getting worse, period. And those are the facts.

Nasdaq Chart

S&P 500 Chart

ECB Decision and Non-Farm Payrolls

The ECB raised interest rates 25 basis points, as expected.  The dollar isn’t very happy with that news and oil is up to $145.14 (high today $145.85). 

The non-farm payrolls, et al., is listed below.  Initial jobless claims have now hit over 400K.  These numbers are not good no matter how you slice them.

JUN UNEMPLOYMENT RATE: 5.5%

JUN CHANGE IN NONFARM PAYROLLS: -62K V -49K prior;  CHANGE IN MANUFACTURING PAYROLLS: -33K V -26K prior (see revisions)
- Prior April Nonfarm Payrolls revised  Lower from - 49K  to   -62K
- Prior Manufacturing Payrolls revised Lower from -26K to -22K

INITIAL JOBLESS CLAIMS: 404K V 385KE;    CONTINUING CLAIMS: 3.116M V 3.125ME
- Prior Initial Jobless Claims revised from 384K to  388K
- Prior Continuing Claims revised from 3.139M to  3.135M