Economic Data – CPI and Jobless Claims

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The market continues to slide and is having difficulty holding onto those supports. The economic data and some late earnings reports show a softer economy than what many have predicted. What seems strange is that the 10-year yield continues to move slightly higher (up to 2.78%), as the economic data shows the stars may not be aligning for Federal Reserve justification to taper in September, as many predict. Could we be setting up for a bond/market rally with a September surprise that the Fed will NOT taper and keep the money flowing? Perhaps, but what weighs on the minds of many is that the private sector data, in the domestic company (even with current QE), is not looking too strong.

Economic Data

Jobless Claims

Weekly Jobless Claims fall 15,000 to a “seasonally adjusted” 320,000, the lowest level since 2007. Of course, the prior week was revised higher. The 4-week moving average also declined to 332,000. We seemed to have hit a net job shedding and baseline a couple of years ago and the decline in claims is getting back to normal. This is certainly a good sign that we are now at a bottom, from the lay-off perspective. However, we can’t forget that LESS firing doesn’t mean MORE hiring. We are measuring two things, unemployment vs. job creation. The weekly jobless claims reflect how many people are filling for jobless claims. When the Great Recession hit and the market crashed we saw mass firings; the weekly claims rocketed into the 600,000 per week level. Because we didn’t have an immediate recovery (and recovery is even debated to this day), demand remains weak and companies continue to trim and increase productivity. There is a point, however, in which we reach a productivity plateau where any more cuts would impact the quality and/or quantity of production. So it seems we have finally hit the bottom (or back to pre-crisis normal) on job cuts. That is not to say that the other end of the equation, job creation, is firing on all cylinders. The last two Labor Reports reflected an alarming trend: the net job creation is in part-time employment. True, in June we created a 120,000 jobs, but when you break it down it was 360,000 part-time jobs as full-time jobs were cut by 240,000. This repeated in July and I will be interested to see how this plays out in August’s Labor Report. This trend seems to be a factor of Obamacare as companies are lowering hours and hiring more part-time workers, while shedding full-time to avoid the Obamacare penalties.

Take a look at the duration of unemployment, this is an important factor that goes unnoticed.

unemployement duration
Courtesy of shadowstats

Inflation CPI

Yesterday morning we had another fun Steve vs. Rick battle over inflation on CNBC. Steve, of course, blindly believes in all government data, never questioning it, as if it is the Word of the Lord. Meanwhile, Rick questions the data and believes that the government’s measure of inflation is not an accurate measure as felt by the Middle Class. This morning the Labor Department reported the Consumer Price Index (CPI-U) rose 0.2% for July (on a seasonal adjustment basis, of course), which slowed from 0.5% in June. From July-to-July the CPI is ticking at 2%. The Chain Consumer Price Index (C-CPI-U) rose only 1.8% on a yearly basis, in comparison. Changes to the model and revisions are expected to be made in February, 2014. The government’s measuring stick for inflation is still in that Federal Reserve target threshold, so that should ease concerns of the believers that QE has not caused any inflation. Perhaps it is another justification to continue with QE.

Inflation & Gold

Two Dow Component’s Big Concern

The following two companies are putting big pressure on the Dow Jones futures this morning and that could spell for a very weak opening which could break support levels.

Courtesy of Wikipedia

Wal-Mart (WMT) reported some concerning earnings and same-store sales data. The company saw net revenue increase 2.4% to $116.2 billion, but that was below estimates. Additionally, same-store sales fell 0.3% as traffic fell 0.5% in the U.S. The company cited a weaker consumer and the payroll tax as a continuing problem impacting sales. While their international division still grows, it is growing slower and that, too, brought cause for alarm. The international markets are not strong enough to continue to carry the weak domestic consumer. The company’s net income was $4.07 billion, $1.24 per share, which was up from a year ago and within expectations. There is good news; the revenue continues to grow, just a lot more slowly. The problem is that the growth which Wal-Mart had been predicting is missing the mark and they are lowering their full year guidance. Also, no one likes to see a decline in same-store sales and traffic. The stock is down over 2% in the pre-market and that is pulling down the Dow Jones futures.

Courtesy of Wikipedia

Cisco (CSCO) also announced a surprise, planned layoff of 5% of its workforce (4,000 employees). Theyalso announced that revenue climbed 6.2% to $12.42 billion from $11.69 billion and net income rose to $2.27 billion, or 42 cents per share. While revenue beat expectations, the earnings fell slightly short. The well respected CEO, John Chambers, stated that while they had a strong quarter they are concerned about global growth rate slowing and not being at the pace they initially predicted. The planned layoffs were also part of the restructuring the company is focused on as they expand into new regions and markets. An executive stated they are focused on the “right people, with the right skill sets, in the right place.” The stock is down sharply, by almost 8%,  in the pre-market . It looks like 24 is a support area, but that, too, is above a significant gap-up from 21 in mid-May.

Support & Resistance

INDU 15,000
The Dow Jones slid yesterday and this morning it is under pressure from two components that are spelling out some 2nd half of the year concerns. I don’t see any real support until we get down the 15,000.

NDX 3100?
There are a couple of supports in the 3100 and 3050 areas. This index has driven higher on Apple’s iPhone hype prior to its release and a Tweet from a billionaire activist investor. Personally, I think it will see some resistance at $500 and also believe that Apple really has to exceed the September iPhone release hype to keep this stock from seeing profit taking. Apple stock is under some pressure this morning and the index is under pressure from CSCO, as well.

SPX 1680
The SPX, unlike the Dow Jones, has been holding, but that could change this morning. Watch the close; it will be important if it can hold the 1680 level. The VIX also started moving back up yesterday (to 13) and I suspect it will hit 13.5 to 14 today.

RUT 1040
This is the big indicator in my book. Certainly the Dow Jones and NDX can have a couple of stocks inject some volatility into them, since they are narrow based indices (only a few stocks). The S&P 500 has more and thus is not as prone to the odd big stock move, but it is the RUT that reflects the broadest breath of order flow in the market. If the SPX and RUT are able to hold on or very near these supports into Friday with any strength, then I think the INDU and NDX volatility could be short lived. However, if we see the RUT break down below 1040 and start falling, it could reflect a general trend out of equities, in the short-term. I would make sure to have my alerts set and watch this index closely.

Egypt Civil War?

Egypt is back in the 24hr news cycle. Oh, did you forget that we just supported a coup in the biggest nation in the Middle East, which controls the Suez canal and borders Israel? Probably, because our nation’s media has been wrapped up in Trevon Martin and other domestic issues. We seem to have forgotten that Egypt is on the verge of a civil war in which our nation has already taken sides with the military junta. Well, in about 24 hours now, over 500 people have been killed by military forces and the nation is about to break out into civil war. Meanwhile, the US continues to fund and send money and weapons to the military. I guess we are in it knee deep, AGAIN, and we just can’t leave it alone. Needless to say, supporting the military in a coup against a democratically elected leader (regardless if we support their ideology) has others in the region concerned. Remember, they elected a Muslim leader and all the nations in the Middle East (minus Israel) are Muslim. So, what do you think those other Muslim nations are thinking while we support the military in a coup against a democratically elected Muslim leader? Frankly, it is just a shit-storm and now we have our hands caught in the cookie jar. The rhetoric out of Washington is about supporting Democracy, but how can we really say that as we just supported the military? Oh wait, I know because we didn’t like the leader they “democratically elected”, so it is ok to support the military in a coup. Sounds a little hypocritical and like a democratic oxymoron.

I am certainly not a supporter of the government they elected, but that is not really the point. The point is far more simple and one from which we need to remove our own ideology and politics. First, what do you think our allies think about us supporting a military coup against a democratically elected government (in which we supported the entire democratic process)? Second, this is in the Middle East and we are about to seriously piss off more Muslim nations in a region in which we are fighting two wars. Not to mention this puts a serious damper on those peace talks and negotiations between Palestinians and Israel. We just again showed the world that we like to meddle in other’s affairs.

What does this all mean for the market? Well, I don’t even have to look at my computer screen to wager that oil has been climbing in price. Also, if we look at shipping traffic and costs, the prices are going up (with the Suez being one of the world’s biggest shipping channels).  You can’t help but wonder if we are about to seriously step in it with more commitments, either financially or with troops, to the arena.

President Obama is expected to speak about it at 10am eastern today; we will only have to see what happens. One has to wonder if the terrorist threat level will also be elevated.

Violent Clashes in Cairo, Egypt

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