Market Talk

- The Fed is often accused of being behind the curve, and for good reason. Look at this headline that ran earlier on the broadtape, quoting Dallas Fed’s Richard Fisher:

*DJ Fisher: Sees Early Signs Of Unconstructive Market Speculation

Early signs? Take a look at a chart of any commodity or major stock index. Early signs of unconstructive speculation? And this comes from a guy who’s considered to be one of the FOMC’s biggest hawks. Good heavens. Here’s his quote, reported by Newswires’ Frances Robinson in Brussels:

“We have abundant liquidity, now there’s excess liquidity, which is working through the system,” Fisher said. “There are in my view, early signs of speculative activity that I don’t consider constructive.”

If he’s only seeing “early signs,” how far behind the curve do you think the rest of the Fed gang is? By the way, Fisher quipped that protectionism is “the syphilis of economics.” Interesting analogy. What’s the gonorrhea of economics? Probably speculation. It’s bad, but you can get rid of it pretty quickly.

Meanwhile, Philly Fed’s Plosser is dishing up some hawkish comments, saying headline inflation is “all that matters,” and core is just for filtering noise. The frank talk is welcome, but stock market ignores him because his hawkish tendencies are well know.

- US stock markets seemed to find euro strength a source of comfort yesterday, and have frolicked with the single currency again today. But euro’s lost some zest in early afternoon trading and is catching some notice from stocks, which have since pulled back from their earlier highs.

As is often the drill, IBM and CAT together account for roughly 40% of the DJIA’s advance, at this point up 70.

- Now to the absurd file. JPMorgan strategist Thomas Lee takes the cake today for the headline on his morning US equity strategy note: “History showing post-nuclear disaster bounce is 9.6% for the next 3-mos plus negative investor sentiment point to upward bias in next few weeks.”

We kid you not. That’s what he wrote. After nuclear disasters, stocks usually bounce about 10% in the next three months. Uh, yes, sample size is a little small, so be careful taking this one to the bank, citizens.

Question for Mr. Lee: What are the returns for stocks three months after two regimes are deposed in North Africa, another nation erupts in civil war, a third European nation collapses financially and needs a bailout, and the world’s third-largest economy gets hit with a 9.0 earthquake, followed by a tsunami, followed by a nuclear crisis?

(Paul Vigna contributed to this post.)

A little perspective on today’s economic data:

- January CPI “completes a trifecta of inflation reports that showed both overall and core inflation ahead of expectations,” RDQ Economics writes. “The Fed remains focused on core inflation at the consumer level, which it thinks will be restrained by high unemployment, and largely dismisses higher food, energy, and commodity prices as being influenced by the ultra loose stance of monetary policy,” firm says.

“We are not Phillips Curvers and we are increasingly concerned that inflation is headed higher.” RDQ notes evidence in latest report “that even core CPI inflation has bottomed and has begun to move higher,” and price increases “were fairly broad-based.”

- Weekly initial jobless claims “were worse than expected rising to 410k (400k consensus), but that gain was from a weather induced low of 385k, a number that was not real,” writes Eric Green, chief US rates strategist at TD Securities. “What is real is that the weather distortions are now purged from the claims data and we are left at a 4 week moving average of 417k, essentially unchanged from last week,” he notes. “We need to get below 400k and stay there if the market is to buy in to sustained improvement in the labor market.” Continue reading…

So, let’s recap. Stocks rise sharply this morning, and “the market” say it must be because of the good earnings, and the drop in jobless claims. But right now, stocks aren’t up very much at all. So, did the market reconsider? Did they suddenly decide they didn’t like earnings?

Or is it, once again, the dollar? This isn’t what we talked about on the Markets Hub today, we focused on the earnings and news out of the Philly Fed, but what you’re seeing is another reminder that the macro picture is what’s driving everything these days, and the macro picture can be boiled down to just this: the dollar.

As if on cue, after our column this morning, what was the data point that most stood out in today’s Philly Fed business survey? Prices paid, which jumped sharply after falling over the past five months.

From the Philly Fed:

Price increases for inputs were more widespread this month. The prices paid index, which had declined 33 points over the previous five months, increased 22 points. Thirty‐four percent of the firms reported higher prices for inputs, compared with 23 percent in the previous month. On balance, firms continued to report declines in prices for their own manufactured goods: More firms reported decreases in prices (16 percent) than reported increases (7 percent). And the prices received index remained negative for the fifth consecutive month.

As we wrote in today’s column, this is an issue that’s going to vex companies, which have to figure out how much of any higher costs they can pass along to customers. For retailers in particular, which always have the leviathan Wal-Mart to contest with it, it’s an especially delicate calculation.

“These developments, which were seen in the NY survey to varying degrees, bear close watching,” Miller Tabak’s chief economic strategist, Dan Greenhaus, wrote this morning. “Accounting 101 tells us that if a company’s input costs go up, and they are unable or unwilling to pass those costs on to the consumer, their margins get squeezed.  In a tough pricing environment, this does not bode well for profitability.”

Intel’s move to acquire computer-security software maker McAfee fails to buoy the stock market, as economic data again darkens the outlook for the economy sparking sharp moves across financial markets.

Philly Fed’s manufacturing index also unexpectedly dropped, adding to mounting concerns over the stagnant labor market. Newswires’ Steve Wisnefski, Mike Reid and Michael Casey discuss on the Markets Hub.

Banks are leading the market down, after JPMorgan’s earnings report looked great on the bottom line, but not quite so hot above there. Also, today’s data offer more dismal markers on the recovery.

Before you get to the video, ponder this from Capital Economics’ Paul Ashworth: “Today’s data releases suggest that the industrial recovery is rapidly losing momentum, making deflation an even bigger threat.”

R’ut r’oh, Shaggy. Ah, well, here’s today’s Markets Hub:

We should rename this “Tomorrow’s Caveats Today.” Seems like everything’s got a “but” built into it these days. Today we’re talking about the Philly Fed, jobless claims and Wal-Mart’s earnings, and while the market had some mixed reactions, there are elements beneath the headlines worth keeping in mind.

Today on Tomorrow’s News Today, we discuss jobless claims, AOL’s layoffs and the Philly Fed report.

AMR’s unusual financing deal, the strong Philly Fed report on manufacturing, and a disappointing reading on retail sales in the UK. It’s Tomorrow’s News Today.

I have to say, AMR’s deal to sell its frequent flyer miles to Citi to me sounds like New Jersey Gov. Jon Corzine’s scheme to monetization Turnpike tolls. You’re basically collecting money now for future revenue streams. The people in New Jersey went nuts when that hit the papers, and eventually the Governor backed off it. Apparently that thinking works in other precincts.

It’ll be interesting to see how other companies in AMR’s position, not the strongest players and needing to raise cash for whatever reason, navigate the waters. Credit’s loosened up, but it’s not flowing quite as freely as the folks in Washington would like. That puts companies like AMR in the position of coming up with very creative means of raising money.

US stocks break their three-day losing streak, after the Philly Fed reports business conditions in the mid-Atlantic region improved markedly (while still showing overall contraction) and Conference Board’s leading indicators index rose for May.

Initial jobless claims for the week rise slightly, but the continuing claims figure drops for the first time since the week of Jan. 3. While that is probably a good thing, we’re not sure how much of the drop off came from people who found new jobs and how much came from people falling off the dole (and into oblivion, likely.)

DJIA rises 58 (0.7%) to 8556, S&P 500 gains 8 (0.8%) to 918, Nasdaq Comp slips less than 1 to 1808. Volume’s low; some selling into the close. Healthcare, financials – the veritable ying and yang of defensive/speculative trading – lead the gainers.

Continue reading…