Wow, these short weeks really mess with your schedule!
We have jobs numbers today but the real deal is earnings season next week so I won't put much stock today's action until we see what follow through we have in the next few sessions.
8:30 Update: Hourly earning are up a reasonable 3.9% for the year, the workweek ticked up slightly and non-farm payrolls grew 132,000, a "good" number but were adjusted up to 190,000 in May and 122,000 in April, which means the "good" numbers originally reported by the government of 157,000 in May and 80,000 in April were off by staggering amounts, indicating the market reactions at that time (both positive) were dead wrong and based on faulty data.
It is amazing that the markets even bother with this junk as this is not the first time the jobs numbers reported have been found to be off by 50% or more. ADP sees a much hotter hiring environment and I think they have a little more credibility than the Department of Labor at this point. Unfortunately, we are not producing "quality" jobs. Service-sector employment rose 135K, Leisure and Hospitality were up 39K and Education and Health Services added 59K. Business and Professional Services fell 9K and Retail lost 24,000 jobs. Real earnings dropped .2% for May as the DOL apparently didn't get the memo to ignore food and energy prices when pretending how great things are.
Asia looked good this morning, with Shanghai taking a 40% bounce off yesterday's huge drop and Hong Kong continuing to act like pullbacks are something you only read about in textbooks, as that market tacked on another 278 points to finish the week over the critical 22,500 level (not reflected on this chart). There is a hostile backlash forming against foreign direct investments as governments from Canada to China have imposed or are considering restrictions on foreign purchases of companies, factories and real estate in their countries. The US received $99Bn in investments in 2005 while US companies spent a net of ZERO (yes $0) acquiring foreign assets, down from 222Bn in 2004. This is NOT a good trend!
European markets were doing well until they saw our jobs report but have turned down a bit and Brent crude shot through the critical $75 level but the effect is slightly muted there as the Euro rises to another record against the dollar, which is the near-worthless currency they get to trade for oil.
Microsoft will put a damper on the Nasdaq today as they take a $1Bn charge for Xbox defect repairs. NEM is discontinuing it's merchant banking division, eliminating all hedging at a cost of $531M and a $1.7B non-cash charge in Q2 in a MAJOR bet on higher gold prices. "With the elimination of our gold hedge book, we have renewed our commitment to maximizing gold price leverage for our shareholders," CEO Richard O'Brien said in a statement. Braddock Financial's $300M Galena hedge fund is liquidating "after concerns of subprime mortgage exposure triggered investor redemptions."
We'll see just how good the markets are at ignoring this news going into the weekend but don't expect much:
I said yesterday in the members chat room that we need to watch GOOG and AAPL closely because, if they capitulate, it is very likely to be over in the short run. We've still been picking up some longs, just in case the madness never ends but it's getting close to expiration and it's time to get those July contracts off the table so we'll be reviewing our positions over the weekend and keeping good covers on our open calls.
NMX Aug $140s, now $3.10 were a Happy Trade yesterday and I like them a lot if we can get over $127.50 today. Volume at the NYMEX has been huge and 7/31 earnings have a fairly low estimate of .61 per share with the stock trading $20 below it's June high.
We get a natural gas report at 10:30 and ZMan and I think there will be a large build. If that doesn't finally kill the oil market then it's time to throw in the towel over there but I am determined to short them through next week. My main economic concern de jour is rates, so let's keep an eye on the 10-year, currently at 5.18% and see if it hits 5.20%.
Have a great weekend,
– Phil
