At the beginning of the week we mentioned there will be a tendency among those who sold at the low and have missed out on this rally from those depths to look for any weakness as an opportunity to get back in, odds are this action had some affect on yesterday’s market activity.
Financials, technology and basic material shares led the rally. Advancing stocks beat decliners by a three-to-one margin on the NYSE. Some 1.4 billion shares traded on the Big Board, right in line with the three-month average.
Market Activity for May 14, 2009
One would think additional comments late yesterday to set up an exchange for over-the-counter derivatives market (focused at reducing risk in the financial system) was also helpful for stocks. As discussed in March, this has been on the table for a while now but it seems real progress is being made to that end. So long as this is done right, and not totally screwed up as it works its way through the various regulatory agencies, setting up a clearinghouse for the credit default swap (CDS) market in particular will prove hugely beneficial. The market is currently opaque and transparency is key to optimal pricing.
Pricing in the CDS market can get out of line due to the lack of transparency and this can exacerbate declines in stock prices as it affects the market’s perception of default risk.
Jobless Claims
The Labor Department reported initial jobless claims rose 32,000 to 637,000 for the week ended May 8 after two weeks of decline that had increased confidence the reading would continue to improve, this data batters than belief. A “good part,” according to the Labor Department, of this increase was due to the Chrysler layoffs. It’s pretty much a known that auto workers waste no time filing for jobless benefits, so job cuts in the industry show up via claims very quickly.
Looking through the individual state’s data on claims it does show job losses within the construction and services industries continues, so it can’t totally be blamed on the auto sector.
The four-week average rose 6,000 to 630,500.
The most disturbing aspect of this report remains the continuing claims data. It set a record for the 15th consecutive week and the increase (up 202,000) is the biggest jump we’ve seen during this 15-week run of new highs. This spells big trouble for the overall jobless rate.
And speaking of which, the insured unemployment rates (jobless rate among those who have filed for benefits at least two weeks ago) ticked up another 0.1% to 4.9% -- the highest level since December 1982 when the overall unemployment rate stood at the post-WWII high of 10.8%. We’ll be testing that level over the next year.
Producer Prices
The Labor Department also reported the producer price index (PPI) rose 0.3% in April (a rise of 0.2% was expected) after a 1.2% decline for March. Prices paid to farmers, factories and other producers had been declining – down 3.7% compared to the year-ago period – but have flattened out, on average, over the past four months.
Most of the recent inflation gauges have had energy as the main driver, but for this latest PPI reading food was the kicker, which jumped 1.5% last month.
The consumer goods segment rose 0.4% for the month, despite a large 6.2% decline in natural gas prices. A 1.3% rise in prescription drug prices and a 2.6% increase in gasoline more than offset the decline in nat. gas. We know gasoline prices continued to climb into this month and nat. gas has rebounded, so the consumer goods segment is likely to drive PPI higher again for May.
Producer prices generally are not a big concern, and especially so right now as they are just beginning to rebound from the plunge that occurred September-December. Even as PPI rises, strong productivity gains of the past couple of decades have allowed firms to absorb these costs, which means they do not entirely pass them along to the consumer. This will be an important thing to watch as PPI jumps several months out, productivity improvement will need to rising at a healthy clip.
The crude materials aspect of the PPI report (the headline PPI reading measures finished producer prices, crude materials are obviously those that go into making these finished goods) jumped 3.0% last month. Now, this is a huge monthly increase, but follows big time declines in crude-material prices so one can’t gather too much from this jump just yet. However, it will be important to keep an eye on the trend here for it may give us a good sign as to the timeline of when troubling inflationary levels begin to take effect. It’s early days for now though.
Have a great weekend!
Brent Vondera, Senior Analyst
No comments:
Post a Comment