U.S. stocks continued their latest bounce for a third-straight session as traders continued to bet the Europeans will borrow more money to re-capitalize their banking system and the ECB announced they’ll restart the liquidity measures they rolled out in 2009 – don’t know how anyone sees that as a positive, but the current market mindset is very short term in nature.

Financials, basic materials and consumer discretionary were the leaders for a second day.  Telecoms and consumer staples were the laggards but did close higher.

The price of crude bounced back to $82/bbl, after falling to $75 a couple of days back, as we can’t have stocks going higher without crude following – sorry consumer.    You know, if those “taking it to the street” on the Brooklyn Bridge weren’t so benighted, they’d march themselves over to the Eccles Building to engage in their protests.

And speaking of central banks, in JC Trichet’s last act as ECB president he refrained from cutting their benchmark rate from the current 1.50%, but did extend unlimited funding to the banking system.   The central bank will also restart its covered bond purchase program -- buying asset-backed securities from bank balance sheets.  Both of these actions are programs the ECB rolled out during the first stage of the financial crisis in 2008-2009.

The fact that U.S., British and euro-zone central banks continue to keep policy floored is really all anyone needs to know about the economic and financial environment with which we’re living.  And despite these unprecedented monetary steps, the Great Stagnation continues.  Did the financial crisis ever really end?  Surely not; its end won’t officially be recorded until the banking system is strong enough to stand on its own, having an ability to raise capital strictly from the private markets.

This morning we get the September jobs report and expectations have been reduced to the point that any payroll number with a positive sign in front of it, no matter how insufficient to improve the jobless rate, is now seen as bullish – or at least enough to scare the shorts into covering their positions, which is pretty much the definition of a bear-market rally.

Market Activity for October 6, 2011

Sector Activity for October 6, 2011

Jobless Claims

Initial jobless claims rose 6,000 to 401,000 last week as the second move below the 400K mark (the previous week’s 395K print) over the past six months again proved fleeting.  The result did beat expectations as the market was looking for a print of 410K, but the absolute number is what matters for the unemployed – so long as we remain above 400K, the job growth we need will simply not occur.

The four-week average fell 4,000 to 414,000.

Continuing claims (those on jobless benefits between 2-99 weeks) did fall but not by enough to offset the prior week’s increase.  These claims stand at 7.25 million.

Bloomberg Consumer Comfort

Bloomberg’s survey of consumers’ views on things improved last week, but the move was of little consolation as the survey remains at extreme lows.

All three components of the survey rose last week, but at these levels any small improvement is meaningless:

The state of the economy:

Personal finances:

Buying climate:

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Have a great weekend!

Brent Vondera, Senior Analyst

Phone: 636-449-4900