Market Shifts Gears On Jobs, Spain, And China
Saturday, April 14, 2012
A weak jobs number coupled with false China rumors and unsolved Spanish issues sent the stock market down the valley, up the mountain and down the valley again. The week ended with Ben Bernanke forgetting to provide QE3, while making a case for the Fed’s existence and lack of accountability. The other less covered story was that German bunds had lower demand, attracting only 4.11 billion euros in bids against a target of 5 billion. One explanation focused on the less need for safety, which proved to be wrong as the week progressed.
U.S. wholesale inventories rose a higher-than-expected 0.9% in February, while wholesale sales rose 1.2%, and the inventory-to-sales ratio was unchanged at 1.17 months. Inventories grew 0.6% in January while sales were flat in that month. Some will say that the increase in inventories over the past two months shows that companies are experiencing higher demand for their goods. The other view is that higher inventories signify lower spending ahead.
Import prices increased 1.3% driven by a 9.6% advance in petroleum prices. In contrast, natural gas prices fell 37.8% over the past 12 months. Export prices increased 0.8% in March, the largest monthly advance for the index since April 2011. Overall export prices rose only 0.9% over the past 12 months, the smallest year-over-year advance since the November 2008-09 period.
The U.S. trade deficit narrowed considerably to $46 billion from $52.5 billion the previous month, and the broad weakness was in display. “February exports were $0.2 billion more than January exports of $180.9 billion. February imports were $6.3 billion less than January imports of $233.4 billion,” according to the BEA.
The producer price index was flat, while the core reading increased by 0.3%. The CPI is running at 2.7%, and the core at a lower 2.3%. Considering the high price of gasoline and the inordinate amount of money printed, overall inflation is quite tame. The preliminary UoM Consumer Sentiment registered 75.7, slightly lower than forecasts for 76.4, and half-point below the last reading of 76.2. Noticeably, inflation expectations tumbled to 3.4% from 3.9%.
GLOBAL: China’s consumer inflation increased to 3.6% from 3.2%, while the PPI (producer inflation) had its first negative reading (-0.3%) since December 2009. China’s exports in March increased 8.9% from the same month last year, while imports rose 5.3%, leaving the country with a $5.4 billion trade surplus for the month. The $670 million surplus for the year so far is running much lower than usual. New loans in China left forecasters in the dust (799 billion), increasing 1.01 trillion yuan and the highest amount since February 2011. Time to prime the pump.
Chinese fixed investment growth declined slightly to 20.9% from 21.5%. Industrial production and retail sales increased 11.9% and 15.2% respectively, although the growth rates are much lower than in recent memory. Retail sales growth was the lowest since September 2009, while industrial production was growing at 20.7% about two years ago, or almost double the current rate.
Chinese GDP had a life of its own on Thursday, with a rumor circulating that the forecast of 8.4% would be short of the yet "to be published 9%." The 8.1% official number was a disappointment. Considering that the Chinese have already admitted that the GDP number is “made up,” one can take it for what it’s worth.
The big story of the week was Spain, and the Spanish IBEX 35 stock index dropped to a three year low due to rising yields and a complete lack of growth. After all, housing was the driver of the past, and that industry is moribund at best, while banks are sitting on monumental losses.
“The fear is that Spanish banks are on the verge of insolvency because of their exposure to the domestic real estate market. If the real estate market drops another 15% all Spanish banks except [Banco] Santander will basically be wiped out. So the ECB will have to help these banks recapitalize,” said Christian Tegllund Blaabjerg, chief economist at FIH Erhvervsbank.
Yet, nothing is different than it was 4 years ago. In addition, Spanish banks borrowed massive amounts from the ECB’s LTRO, or a total of 316 billion in March, to patch the pot holes in their economic road. Of course, once it rains, the pot holes will need repair.
TRENDS: Major indices ended the week lower and short-term trends are all negative. The long-term picture switched to neutral, with the Nasdaq 100 still in positive ground, and the Russell 2000 turning negative. The dollar vacillated but ended the week on a strong note, and with short and long-term positive trends, which is not healthy for stocks. The euro swayed but fell back into negative territory with the $1.30 level only a step away. The yen is holding flat within a positive trend, and further appreciation will get the BOJ sweating again.
Gold and silver kept overall negative trends, but within ranges, while the risk is for a break-down in price if the dollar accelerates its ascent. Oil (WTI) loves the above $100 level, and Brent appears to be married to the $120 price. Yet, and apart from the normal Middle East risk, there’s nothing economically speaking to support the prices, and copper has been stating that fact and ended the week down 4.5% at $3.62, solidifying its negative trend. The 10-year Treasury rate moved back below 2%, defying the bond bubble scenario.