Market Reflections ... Monday - Jul 28, 2008
Continuing jitters over the financial sector pulled stocks sharply lower Monday with the Dow industrials falling 2.1 percent to close at 11,131. There was no single news item to explain the drop which however does follow news Friday of a small bank closure on the West Coast. Otherwise earnings in the session were solid led by a 12 percent income rise for Verizon. With about half of the S&P 500 having now reported results, profits are down about 18 percent year-on-year though profits are up about 8 percent when financial firms are excluded.
There were no major economic releases in the session though the White House did raise its estimate for the nation's fiscal deficit to nearly $500 billion for the next fiscal year. The Treasury separately announced that it will need to borrow $171 billion in the third quarter, nearly double its initial estimate due largely to higher outlays.
Money flowed back into the safety of Treasuries where the 2-year yield fell 12 basis points to 2.59 percent with the 10-year down 8 basis points to 4.02 percent. The dollar fell back 1/2 cent to $1.5744 against the euro. Oil prices stabilized, up about $1 for West Texas Intermediate to $124.76.
Continuing jitters over the financial sector pulled stocks sharply lower Monday with the Dow industrials falling 2.1 percent to close at 11,131. There was no single news item to explain the drop which however does follow news Friday of a small bank closure on the West Coast. Otherwise earnings in the session were solid led by a 12 percent income rise for Verizon. With about half of the S&P 500 having now reported results, profits are down about 18 percent year-on-year though profits are up about 8 percent when financial firms are excluded.
There were no major economic releases in the session though the White House did raise its estimate for the nation's fiscal deficit to nearly $500 billion for the next fiscal year. The Treasury separately announced that it will need to borrow $171 billion in the third quarter, nearly double its initial estimate due largely to higher outlays.
Money flowed back into the safety of Treasuries where the 2-year yield fell 12 basis points to 2.59 percent with the 10-year down 8 basis points to 4.02 percent. The dollar fell back 1/2 cent to $1.5744 against the euro. Oil prices stabilized, up about $1 for West Texas Intermediate to $124.76.
Market Reflections ... Tuesday - Jul 29, 2008
The stock market has been swinging back and forth in big sweeps in recent sessions. Tuesday saw a jump that was helped by a drop in oil and strength in the dollar but not really supported at all by the session's economic data nor by company news which included another massive loss at Merrill Lynch. Nevertheless, the Dow industrials jumped 2.4 percent to just under 11,400.
Oil dropped about $3 to $121.79 raising talk that prices could fall as quickly as they rose -- back below $100. The fall in oil and the gain in stocks fed a big rally for the dollar which gained 1-1/2 cents against the euro to $1.5594. The gains in the stock market didn't come at the expense of the Treasury market where yields rose only slightly with the 2-year up only 4 basis points to 2.63 percent.
Economic data in the session included a Conference Board consumer confidence report where readings held at or near record lows across nearly all categories. The report also included a further drop in assessments of the labor market that point to a seventh month of contraction for Friday's payroll report. The Case-Shiller report showed deeper declines in home prices though perhaps at a less severe rate.
The stock market has been swinging back and forth in big sweeps in recent sessions. Tuesday saw a jump that was helped by a drop in oil and strength in the dollar but not really supported at all by the session's economic data nor by company news which included another massive loss at Merrill Lynch. Nevertheless, the Dow industrials jumped 2.4 percent to just under 11,400.
Oil dropped about $3 to $121.79 raising talk that prices could fall as quickly as they rose -- back below $100. The fall in oil and the gain in stocks fed a big rally for the dollar which gained 1-1/2 cents against the euro to $1.5594. The gains in the stock market didn't come at the expense of the Treasury market where yields rose only slightly with the 2-year up only 4 basis points to 2.63 percent.
Economic data in the session included a Conference Board consumer confidence report where readings held at or near record lows across nearly all categories. The report also included a further drop in assessments of the labor market that point to a seventh month of contraction for Friday's payroll report. The Case-Shiller report showed deeper declines in home prices though perhaps at a less severe rate.
Actions taken by the Federal Reserve include:
• Extension of the Primary Dealer Credit Facility (PDCF) and the Term Securities Lending Facility (TSLF) through January 30, 2009.
• The introduction of auctions of options on $50 billion of draws on the TSLF. This is one method to allow primary dealers to borrow Treasury securities from the TSLF during periods of "elevated stress in the financial markets, such as quarter ends."
• The introduction of 84-day Term Auction Facility (TAF) loans as a complement to 28-day TAF loans. This reduces the need for borrowers to return to the TAF as often and increases liquidity.
• An increase in the Federal Reserve's swap line with the European Central Bank to $55 billion from $50 billion. This increase in the swap line is primarily because the ECB and Swiss National Bank have agreed to also make 84-day funds available at their dollar auctions as well as 28-day funds and this shift requires additional funds.
The Fed did indicate that the PDCF and TSLF facilities would be withdrawn "should the Board determine that conditions in financial markets are no longer unusual and exigent." Today's action indicates that the fragility of the credit markets has been deeper and longer lasting than anticipated just a few months ago. --
Market Reflections ... Wednesday - Jul 30, 2008
A $5 jump in oil to $126.96 had no effect on other markets, in what was Wednesday's biggest surprise. Oil of course has been falling back recently and the day's gain, tied to a drawdown in weekly gasoline inventories, may quickly be reversed. Reports said Goldman Sachs, which has been talking up oil all year, reaffirmed its year-end target of $149. Stocks rallied on the session perhaps in part on an upbeat ADP estimate for Friday's jobs report, an estimate that suggests six months of payroll contraction may come to an end.
The Treasury announced a slightly higher-than-expected $27 billion quarterly refunding package split between $17 billion of 10-year notes and $10 billion of 30-year bonds. But a bigger headline came from the Fed which is extending emergency liquidity facilities for the credit market into next year in what is a clear indication of continued problems. Treasury yields were little changed with the 2-year ending at 2.62 percent and the 10-year at 4.04 percent. The dollar also ended little changed, at $1.5576 against the euro.
A $5 jump in oil to $126.96 had no effect on other markets, in what was Wednesday's biggest surprise. Oil of course has been falling back recently and the day's gain, tied to a drawdown in weekly gasoline inventories, may quickly be reversed. Reports said Goldman Sachs, which has been talking up oil all year, reaffirmed its year-end target of $149. Stocks rallied on the session perhaps in part on an upbeat ADP estimate for Friday's jobs report, an estimate that suggests six months of payroll contraction may come to an end.
The Treasury announced a slightly higher-than-expected $27 billion quarterly refunding package split between $17 billion of 10-year notes and $10 billion of 30-year bonds. But a bigger headline came from the Fed which is extending emergency liquidity facilities for the credit market into next year in what is a clear indication of continued problems. Treasury yields were little changed with the 2-year ending at 2.62 percent and the 10-year at 4.04 percent. The dollar also ended little changed, at $1.5576 against the euro.
Market Reflections ... Thursday - Jul 31, 2008
Perhaps the biggest news out of today's GDP report was a $62 billion contraction in second-quarter inventories, suggesting that job cuts down the road may be less severe should demand in fact ease. Ever since the mini-inventory overhang of first-quarter 2007, businesses have been on their toes regarding inventories, heeding the risk of possible recession.
A giant spike in jobless claims was Thursday's other big story, but one clouded by one-time effects tied to congressional efforts to reach out to those who may qualify for past benefits. Chicago purchasers data point to flat conditions ahead. Though prices paid in the Chicago report hit a near record, evidence is building that inflation, because of easing demand, is becoming less and less a risk. The quarterly employment cost index showed easing pressure, indicating that high gas and food costs have not triggered -- in the least -- pressures in labor costs.
Money moved out of the stock market which ended at its lows with the Dow industrials down 1.8 percent to just under 11,400. Money moved into the safety of Treasuries where yields were down more than 10 basis points with the 2-year ending at 2.50 percent and the 10-year at 3.94 percent. The dollar was little changed at $1.5596 against the euro. Indications of economic weakness pushed oil down slightly, ending at $124.37.
Perhaps the biggest news out of today's GDP report was a $62 billion contraction in second-quarter inventories, suggesting that job cuts down the road may be less severe should demand in fact ease. Ever since the mini-inventory overhang of first-quarter 2007, businesses have been on their toes regarding inventories, heeding the risk of possible recession.
A giant spike in jobless claims was Thursday's other big story, but one clouded by one-time effects tied to congressional efforts to reach out to those who may qualify for past benefits. Chicago purchasers data point to flat conditions ahead. Though prices paid in the Chicago report hit a near record, evidence is building that inflation, because of easing demand, is becoming less and less a risk. The quarterly employment cost index showed easing pressure, indicating that high gas and food costs have not triggered -- in the least -- pressures in labor costs.
Money moved out of the stock market which ended at its lows with the Dow industrials down 1.8 percent to just under 11,400. Money moved into the safety of Treasuries where yields were down more than 10 basis points with the 2-year ending at 2.50 percent and the 10-year at 3.94 percent. The dollar was little changed at $1.5596 against the euro. Indications of economic weakness pushed oil down slightly, ending at $124.37.
Market Reflections ... Friday - Aug 1, 2008
Seven straight months of payroll contraction, though modest contraction, point squarely at recession as weakness in jobs is nearly certain to lead to weakness in consumer spending. The unemployment rate jumped another 2 tenths to 5.7 percent, taking more and more muscle away from labor. Manufacturing jobs extended their two years of uninterrupted contraction, while new and unfilled orders from the Institute For Supply Management showed alarming declines in July that point to possible recession ahead for the manufacturing sector. Vehicle sales at the end of the day proved no less alarming with declines steepening in the month to 18-year lows. Honda described uncertainties in the market as "quite profound."
Stocks ended moderately lower with the Dow industrials down 0.5 percent. The dollar was little changed at $1.5557 against the euro. Treasury yields were also little changed ending at 2.49 percent for the 2-year note and 3.93 percent for the 10-year. Oil ended nearly $1 higher at $125.14.
Seven straight months of payroll contraction, though modest contraction, point squarely at recession as weakness in jobs is nearly certain to lead to weakness in consumer spending. The unemployment rate jumped another 2 tenths to 5.7 percent, taking more and more muscle away from labor. Manufacturing jobs extended their two years of uninterrupted contraction, while new and unfilled orders from the Institute For Supply Management showed alarming declines in July that point to possible recession ahead for the manufacturing sector. Vehicle sales at the end of the day proved no less alarming with declines steepening in the month to 18-year lows. Honda described uncertainties in the market as "quite profound."
Stocks ended moderately lower with the Dow industrials down 0.5 percent. The dollar was little changed at $1.5557 against the euro. Treasury yields were also little changed ending at 2.49 percent for the 2-year note and 3.93 percent for the 10-year. Oil ended nearly $1 higher at $125.14.
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