U.S. stocks began yesterday’s session deep in the red after the trifecta of the Fed’s lower growth forecast, factory gauges in Europe’s backbone countries of Germany and France printed contraction and China’s latest measure of factory activity came very close to printing contraction all came together to send futures lower pre-market.  Then investor sentiment took another blow after ECB President Trichet stated the signal of sovereign debt problems threatening the euro-zone banking system is flashing “red,” which was followed by a worse-than-expected jobless claims reading.   All of this hit the market to the tune of more than 200 points down on the Dow Industrials.

But then with about an hour left in the session, news broke that the Greek government agreed to a five-year austerity deal with the EU and IMF.  The news brought in bids to the point that much of the session earlier losses were pared.  Now, Greece must pass this thing and then deal with the big hurdle of piping hot citizens that will likely engage in more strikes and street chaos.

Tech and consumer discretionary (even as jobless claims remain stuck at an unappealing level) were the day’s out-performing sectors.  Energy, financials and consumer staples were the big losers.

The price of crude plunged nearly $4 to $92/bbl (was below $90 before the Greek news hit) as there was a coordinated effort announced to release 60 million bbls of oil from global strategic reserves.  This came a day after news that the Saudis wanted to tighten a noose on the Iranians   Still this is unlikely to have a lasting effect on the price of crude beyond an immediate reaction – the U.S. alone consumes 21 million bbls/day and the world 85 million bbsl/day.  If crude continues to move lower it will be because of the deteriorating growth story (as has been the reason since it peaked at $114/bbl on April 29 (also the stock-market near-term peak).

Market Activity for June 23, 2011

Sector Activity for June 23, 2011

Jobless Claims

The Labor Department reported that initial jobless claims remained stuck above the 400K mark (11th week in a row) as they rose 9,000 to 429,000 from the upwardly revised 420K in the previous week.  The four-week average held at 426,250.

Continuing claims moved in the wrong direction too as they increased by 67,200 to 7.65 million – the standard issue (covers the first 26 weeks of joblessness) fell 1,000 to 3.697 million, but emergency claims (put in play after the recession hit and extends bennies to 99 weeks) rose 68,300 to 3.952 million.

None of this illustrated a job market that has the juice to get the unemployment rate lower, unless we see another exodus from the labor force as more people get discouraged (but that’s hardly the healthy way to lower the official jobless rate).

The nice improvement we saw via payroll gains that took place in February, March and April appears to have run its course.  This jobless claims report is for the week in which the June jobs report will be calculated, so we may very well see another sub-150K number – and we need at least 150K just to keep up with population growth.

New Home Sales

The Commerce Department reported that new-home sales fell 2.1% to 319,000 units SAAR in May – actually better though than the 310K expected.  But up 2% down 2%, it doesn’t matter at these levels.

The supply figures look great actually, even with the decline in sales the inventory/supply figure still slipped to 6.2 months worth (right at the long-term average) from 6.3 for April.

The supply of homes is falling at a faster rate than sales.  One would think, as many have predicted, residential construction to be on the verge of a revival at these record low levels of absolute inventory.  However, the “distressing” reality of distressed properties hitting the market (foreclosed homes) – and many more that have yet to hit – is the millstone around builders’ necks.

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Have a great weekend!

Brent Vondera, Senior Analyst

Phone: 636-449-4900