Written by Gary, GEI Live Market Commentary
Editor's note: The following comments were posted following the market open in New York Friday (13 July 2012). Follow Gary's comments on the market during the days the market is open.
Markets opened slightly higher because of China's continuing GDP slowing and other depressing news from the EU which is not completely understood by this writer. The opening green volume was anemic and lower than previous sessions and the few point gained by the 500 melted up slowly to 1342 (yesterday's close was 1334) as investors waited for the U. of Michigan Confidence numbers. At 9:55 the U of M index came in FALLING to 72.0, expecting 73.5 and initially the markets just yawned. The volume which had moved to moderate prior to the announcement dropped to the anemic levels once again, but stayed green. The volume moved up from anemic to low and melted the markets up to 1352. By 10:15 the red volume stared to build and some melting down was evident.
The red flags are waving and the BTFD'ers and QE hopefuls were out in force buying like crazy for a while after the opening. Caution is warranted as the end result is not going to be pretty – defying gravity like this can't continue as the World Economies sink further.
Interestingly the premarket was almost at a standstill even after the morning financial's. The Producer Price Index Ex Food & Energy (YoY) (JUN) came in at 2.6% as expected. The previous reporting was 2.7% suggesting an economic slowdown in progress **. The SP500 futures didn't even move off its mark of 1332.
The reporting of China's declining GDP numbers earlier actually moved the futures up. The SP500 reported in at 1337 up 3 points from yesterday's 500 close and finally eased off that high mark to the opening of 1332. According to CNN, the Chinese economy grew at its slowest pace since the recession, concluding investors thoughts as a worrisome sign for its trading partners, including the United States and the Eurozone.
Compared to a year earlier, China's economy grew 7.6% in the second quarter, the National Bureau of Statistics said Friday, marking a deceleration from an 8.1% growth rate in the prior quarter and the slowest growth since early 2009. What is the most troubling sign is that the Chinese numbers are probably massaged and do not reflect the 'true' state of their economy which is believed by many to worse than being reported.
Adding to the worry mix today the Telegraph reports more on the breakup of the Eurozone.
SImon Nixon of the Wall Street Journal has also written about this Merrill research, which suggests that the risk of a eurozone break-up might be rising:
In game theory, the most likely outcome isn't always what economists call "Pareto optimal," one that will bring maximum benefit to all players. Instead, the "Nash equilibrium" for the eurozone—the situation in which no player has an incentive to change strategy because to do so unilaterally would leave them worse off—is that Italy refuses to undertake the overhauls needed to enable its economy to grow and Germany refuses to provide the bailouts to persuade it to stay.
Zerohedge weighs in with thoughts of my own.
As JPM takes off, US equities go vertical, and EURUSD overdoses on erectile dysfunction stop-hunting-algo medicine, the good old US consumer - that bastion of demand and foundation of all things GDP-based just said sentiment levels are the worst of the year so far. UMich Consumer Confidence Sentiment just printed 72.0 against expectations of 73.4 - the biggest miss since December 2009. Worst still is the plunge in expectations (economic outlook) to the lowest in 7 months as the 2-month drop is the biggest in a year. It would appear all is not well on Main Street - as the massive schism between ISM Composite relative strength and the reality of the economy remains.
Read Gary's comments during the day at Live Market Commentary.