Consumer discretionary shares led Friday’s gains, which was pretty strange considering the latest consumer confidence reading – we’ll touch on those results below. It appears the consumer discretionary trade got a boost from Disney’s earnings that beat expectations on Thursday night. But the results were able to beat only because of massive cost cutting and a jump in fees from cable operators. The television division drove the number. Advertising and them parks continue to struggle, which is to be expected.
Technology shares also performed well, as did traditional areas of safety such as utility and consumer staples.
Small cap stocks also rose for the week, but have underperformed the large caps over the past four weeks, which may be a sign this rally is getting tired.
There’s certainly no indication the equity sprint is running out of steam this morning though as stock-index futures are up big. A pledge from Asian countries to maintain stimulus measures – pretty much a redux of the statements we got out of the G-20 a week ago – has provided more juice for the risk trade. Commodities continue to roll as gold has hit $1130/oz., oil’s closing in on $80/barrel again (even though fuel demand is weak) and copper hit a new 14-month high -- and is not all that far from the super-spike level of 2008.
The dollar, of course, is getting hammered back to the 74 handle on the Dollar Index as the Chinese government said they will not re-value the yuan (which we talked about last week) and is having a field day ripping on Fed policy over the past several years.
Forget the problems that ZIRP causes in an economically endogenous sense – higher commodity prices, the improper assessment of risk as investors scramble for yield, dropkicking the dollar and exacerbating the credit contraction as banks simply borrow at nothing and invest in Treasury securities instead of making loans. This Fed policy has enormous potential in creating international tensions, problems to which we won’t know the extent until they occur.
Instead of acknowledging this issue, along with the massive deficit spending and protectionist policies that are also damaging relationships, our policymakers are in Asia talking about climate change. You want to talk about misplaced priorities, this is a striking example. When we get to the end game, when the markets no longer rise simply because countries say they are going to keep their stimulus measures floored and the consequences of all of this short-minded stimulus must be paid, I’m betting we’re not going to find anyone who takes life seriously concerned about climate change (it’s interesting how the climate Malthusians no longer call it global warming).
Market Activity for November 13, 2009
Trade BalanceThe Commerce Department reported that the September trade balance registered a deficit of $36.472 billion for the month, a widening from the -$30.849 billion difference in August. The real (inflation-adjusted) deficit widened to $41.71 billion, or 10.1%, from 37.86 billion.
There are a couple of quick takes from this: One, the punishment the dollar has endured isn’t helping to narrow the deficit – which is what all the academics tell us must happen; some people are not surprised they’re wrong. Two, since this is the trade data for the last month of the third quarter, it means a lower revision to the GDP reading – a widening of the trade figure subtracts from GDP.
A significant reason for the wider difference between exports and imports is the higher price of oil, this is one reason the “lower dollar is good for narrowing the trade balance” conventional wisdom is flawed – a lower dollar means an increase in the price of oil.
Indeed, the imported crude-oil number jumped to $4.06 billion for the month, or a 26.2% increase. (The trade deficit hit its historically wide levels back in 2006-mid/2008. Those wides in the trade figures were driven by Greenspan/Bernanke & Co. keeping rate too low for too long, which encouraged the credit expansion and thus the big import flows. Of course, the seven-fold increase in the price of oil (from $20 in 2002 to $140 by the summer of 2008) had something to do with this too. The dollar, which plunged 40% in value against a basket of other currencies during this period, drove that oil price. Again, so much the conventional wisdom – according to their beliefs the U.S should be running a huge trade surplus as a result of such dollar decline.
But back to this latest data, exports rose a healthy 2.9% for the month, but imports rose more, up 5.8%. Ex-petro, imports still rose 4.4% and this was fueled by the clunker-cash scheme (and you thought you had heard the last of that term) as auto parts and supplies imports jumped 11.5% -- automotive goods accounted for 18% of all imports in September.
The exports reading was boosted by a 45.7% increase for commercial aircraft after a 40% decline in the previous month – this volatility is not unusual. Exports of industrial machines and telecom equipment were also good.
Import Prices
Import prices rose 0.7% in October, up for three-straight months and seven of the past eight. No one seems to be paying much attention to this data, probably because the year-over-year reading is down 5.7% -- the 12th month of decline. But over the past six months, import prices are up 13.3% at an annual rate. The actual year-over-year reading is going to post a dramatic shift by the time of the December figures -- even if the number is flat over the next two months that reading will shift from -5.7% as of this data to +7.0% by the December reading.
University of Michigan Confidence
The U of M.’s headline consumer confidence reading for November fell back to 66.0 from 70.6, which brings the index back to where it stood in July. The Economic Conditions reading slipped to 69.6 from 73.7 (which was the highest level since April 2008). The Economic Outlook reading fell to 63.7 from 68.6.
This survey does not involve a specific question on consumers’ take of the job market environment, such as the more widely watched Conference Board’s confidence reading does. Thus, one may expect another decline in that survey, which is already at a level that matches the worst readings of prior recessions, going back to 1967.The Week Ahead
This week will be a big one on the data front as we get retail sales (October), Empire and Philly Manufacturing (November), Industrial Production (October) and Housing Starts (October).
Today we’ll kick it off with one of the most watched numbers, retail sales for October. The reading should post fairly strong results, a number that has a good shot of beating the 0.9% increase that’s expected (+0.4% ex-autos and +0.2% ex-auto and gas).
This market is likely to get excited if the reading is as good as I think it will be as there’s a lot of wishful thinking rolling out there with regard to intermediate-term consumer activity trends. But the weather will have provided a fake out. Last month was the third-coldest October on record and that means it pushed forward fall and winter apparel sales. We’ll see how it turns out in about 30 minutes.
Have a great day!
Brent Vondera, Senior Analyst
No comments:
Post a Comment