ECRI Leading Indicator Plunges Deeper Into Double Dip Territory As Stocks Turn Green
by ilene - July 30th, 2010 10:47 am
ECRI Leading Indicator Plunges Deeper Into Double Dip Territory As Stocks Turn Green
Courtesy of Tyler Durden
The ECRI Leading Indicator has just moved further into certain recession territory, hitting -10.7 for the most recent week (the previous revised number is -10.5). The market goes green on the news, as the Liberty 33 traders have done their job for the day and are off to the Hamptons. And what is so odd about the market reaction one may ask – bad news are as always priced in, as the apocalypse is nothing that a little money printing can’t fix, while minimal upside surprises (soon to be revised far lower) are sufficient to move the market higher by over 100 points intraday. Hopefully the HFT operators unionize and go on strike soon in demanding greater pay, and get the Greek trucker treatment as a result, because this market is not even a joke anymore.
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DiggCurve Fireworks Continue With Wholesale Flattening Following Steepener Capitulation Overnight
by Zero Hedge - July 30th, 2010 10:35 am
Courtesy of Tyler Durden
After surging to a several week high, the 2s10s has plummeted to a one week low in the matter of hours, dropping back down to 236 bps. This follows a day of fireworks in the curve, in which as Market News discusses below, we saw some pretty aggressive hysteria in flattener unwinds. Oddly enough, the collapse in the curve has occurred as the 2s have hit another record low yield, indicating that no matter how much of a spin opportunity any given diffusion index headline provides, the bond market is increasingly pricing in deflation (and in fact the yield on various classes of TIPS was negative earlier today).
For Market News’ Talk from the Trenches summary on the moves int he curve below, read on:
Over the last two days, the 5-year/30-year Treasury curve has steepened about 16 basis points and many players that were involved with the flattening trade got crushed.
Remember that this market has had a flattening bias for a very long time given the premise that the Federal Reserve will be on hold for a long, long time. Therefore, in order to earn returns, people have been relying on the carry trade: in other words, borrow short and invest long to earn the spread.
The trade is clearly overpopulated and it only took a few trades in the opposite direction to send these players into a tizzy. When prices went against them, they bailed.
The move began Wednesday when the 5-year auction received stellar demand. A prominent bond fund and a large central bank were believed to have bought. Soon flattening trades were being unwound and the prominent bond fund advocated the buying of 5-year notes.
Steepening trades ensued, sending the curve even steeper. Many black box accounts also had to bail.Then on Thursday, a large hedge fund was said to have unwound a large flattener and the steepening continued.
The Oxen Report: Play of the Week and Over Weekend Trade on the Way
by David Ristau - July 30th, 2010 10:02 am
Happy Friday to all. For the end of this week, we are ending a quite a bit of a pullback. That gives us some great opportunity to get involved in some new positions as stocks have come down a bit from their high valuations. Therefore, we will be getting in a typical Overnight Trade since there are a number of companies that report on Monday morning as well as getting into our Play of the Week early now.
Yesterday, we did not enter any new positions but we closed two very sucessful Overnight Trade from Wednesday to Thursday in Skechers Inc. (SKX) and Teradyne Inc. (TER). The trades were good for 9.5% and 10%, respectively. Both companies blew out earnings while being undervalued, which gave them lots of buying interest and sent them flying. We got into TER at 10.15 and exited at 11.15. We got into SKX at 35.50 and exited at 38.75.
Let’s hope we have similar success with today’s adventures…
Overnight Trade: Wonder Automotive Group Inc. (WATG)
Analysis: One industry that has had a great quarter along with semiconductors is the automotive industry – parts and cars alike. Thus far in the earnings season, we have had mostly just the American auto parts makers reporting earnings. In the coming week, we are also going to have some of the Chinese auto parts makers reporting as well. One of the first to hit the stage is Wonder Automotive Group on Monday. The company is an automotive electrical parts 
maker that is predicted to report earnings per share at 0.19, which is a penny decline from one year ago, but I am fairly confident the company is going to have a very hefty earnings beat.
What first attracted me to Wonder was the fact that auto parts makers across the board are killing earnings. The auto parts industry has seen twelve out of sixteen of its reported companies since the beginning of June hitting earnings. Many of these companies have had very strong quarterly beats above 100% and even some have had profits while losses were expected. The companies with the most exposure to China have also been among some of the best. Borg Warner and Autoliv are two that have stood out in China.
Chinese auto sales have been outpacing sales from one year ago. In April, Chinese automotive sales rose…
UMich Consumer Confidence Comes Better Than Expected, At 67.8 On Consensus Of 67
by Zero Hedge - July 30th, 2010 10:02 am
Courtesy of Tyler Durden
Expectations at 62.3 vs consensus of 61.3 (previous 60.6), and Conditions at 76.5 vs 76 (previous 75.5). And with this latest self fulfilling prophecy report out of the propaganda bureau, expect stocks to promptly go green as the ugly GDP number is all but forgotten. This report brings today’s official economic release docket to a close. The upcoming ECRI Leading Indicator report (10:30 Eastern) will also come in higher than -10 and with that we will close solidly green as the administration high fives itself over yet another horrible economic print cover up.
Chicago PMI At 62.3 Versus Expectations Of 56 Print
by Zero Hedge - July 30th, 2010 9:52 am
Courtesy of Tyler Durden
It appears the earlier market rumor about a Chicago PMI of 53.6 that sent the SPOOs another leg lower were incorrect. Now if only the administration can please reconcile the drop in the economy with the PMI surge all will be forgiven. In the meantime stocks keep trading from headline to headline. Categories posting improvement include Employment, New Orders, Order Backlogs, Inventories and Production, while Prices Paid decline again.
Pivotfarm Daily News Harvest 30th July 2010
by Zero Hedge - July 30th, 2010 9:38 am
Courtesy of Pivotfarm
Markets in a Flash
· Asian equity markets closed down across the board last night. The Nikkei was down -1.64%, while the Shanghai index was down -0.4%.
· European equity markets are falling this morning ahead of the US GDP figures. The FTSE 100 is down -0.57% at lunchtime London time.
· Commodities are mixed in today trading session. Oil is falling back in correlation with equities while Gold is gaining as investors find safety.
· The JPY seems strong today making gains against the USD, EUR and GBP.
· The EUR/USD and the GBP/USD are both down as investors sought safety in the greenback as money come out of the equity markets.
· US equity futures are down less than 0.5% suggesting the equity markets are going to open lower, but this will be heavily affected by the US economic data.
News Focus
The news focus today is on the US GDP figure. The figure is the big mover of the markets on the last trading day of the week. The Employment Cost Index and Consumer Sentiment will also play parts in directing the markets.
Just Released
0830ET – GDP
Real GDP – Q/Q change – SAAR
Previous 2.7 % Consensus 2.5 %
Consensus Range 1.0 % to 3.4 % Actual 2.4 %
The GDP figure of 2.4% is worse than expected. It is not much lower than the expected figure of 2.5% but will put bearish forces on the markets as it shows the economy is not growing as fast as first thought. This is the big figure of the day and should mean that the equity markets fall when they open and should weaken the USD as the economy is weaker than thought.
0830ET – Employment Cost Index
ECI – Q/Q change
Previous 0.6 % …
Goldman On Q2 GDP: Sluggish Consumption, Growth Moderating
by Zero Hedge - July 30th, 2010 9:38 am
Courtesy of Tyler Durden
Yet more pessimism from Goldman’s Jan Hatzius, who sees a consistent decline in end-consumption. But how can that be when even Bloomberg now writes that Americans Buy IPads While Broke in New Abnormal Economy…
Growth Moderates in Q2 with Consumption Sluggish
BOTTOM LINE: Q2 growth roughly in line with expectations-higher than ours, a bit lower than the median forecast-as surprises in various components offset. Construction and inventory accumulation were higher; trade was weaker. Underneath all that consumption is sluggish. Recession looks a bit deeper on revision, as suspected. Core PCE inflation revised up about 0.2 points on average in recent quarters. Employment costs rise in line with median forecast and a touch more than we thought, mostly due to an increase in public sector benefits.
US-MAP: Real GDP growth 0 (4, 0).
KEY NUMBERS:
Real GDP +2.6% in Q2 (qoq, annualized, +3.2% yoy) vs. GS +2.0%, median forecast +2.6%.
GDP price index +1.8% in Q2 (qoq, annualized, +0.8% yoy) vs. GS +1.0%, median forecast +1.1%.
Core PCE price index +1.1% in Q2 (qoq, annualized, +1.5% yoy) vs. GS and median forecast +1.0%.
Employment cost index +0.5% in Q2 (qoq, +1.8% yoy) vs. GS +0.4%, median forecast +0.5%.
MAIN POINTS:
1. The economy grew at a 2.4% annual rate according to the preliminary official estimate. This was somewhat higher than our 2% figure but a bit lower than the median. Revisions stretching to 2007 show that the recession was deeper than previously estimated-a peak-to-trough drop of 4.1% in real GDP vs. 3.7% in the old numbers-and a slightly slower uptake during the first two quarters of the recovery (second half of 2009). Q1 growth was revised up substantially, however.
2. Although the broad outlines of growth in Q2 were about as expected-large gains in residential and business investment and federal spending versus a deep setback in trade-all of these were more extreme than we had estimated. Inventory accumulation was faster than expected, contributing one percentage point to Q2 growth. This plus the unsustainability of the gains in construction-led by a nearly 28% annualized increase in the residential component-emphasizes the downside risks to growth in future quarters, especially as real consumer spending was sluggish. That said, the trade drag will also reverse. On balance, we see little in the first look at these numbers to alter our view that the economy will remain sluggish in…
Guest Post: What Costs $1.8 Billion And People Go There All Day To Gamble?
by Zero Hedge - July 30th, 2010 9:30 am
Courtesy of Tyler Durden
Submitted by Themis Trading
What costs $1.8 billion dollars and people go there all day to gamble?
If you answered the latest Las Vegas casino, you are incorrect. The correct answer is the investment in data centers last year from equity trading firms. According to our buddies at the Tabb Group, equity firms spent $1.8 billion last year on data centers; half of that total came from sell-side shops. But even though they are spending tons of cash on the infrastructure, they are not exactly doling out the cash to their programmers. According to a recent Forbes article, many of these HFT programmers are starting to feel underpaid considering how much money their firms have been making. Forbes says that, “many programmers are immigrants or were hired out of college for $80,000 to $150,000 a year.” They mentioned one programmer who said that his firm was “generating $100,000 a day from his high-frequency trading software and paying him only $150,000 a year.” Now, the HFT programmers are standing up and fighting back. They are taking their computer software and launching their own firms. And, again according to the Forbes article, they think they are going to “make a ton” of money. It sounds to us like another bubble is about to pop.
Yesterday, we had our fifth circuit breaker pop since the pilot program was announced. This time the stock was CSCO and 7 trades of 100 shares priced between $24 and $26 caused the breaker to go off. All of these trades occurred on the NYSE Amex. You’ll recall that we just wrote about the NYSE Amex trading NASDAQ stocks in a recent post. It didn’t take long for that little experiment to cause problems. The question that now needs to be asked is why did the NYSE Amex allow a trade to occur through the market by such a large percentage? CSCO is one of the most active stocks, and let there be no doubt that there were plenty of offers to fill a 700 share buy order at competing venues. It appears that rather than route to another venue, NYSE Amex routed the buy order to their own best offer first (which was far away from the NBBO). Wait a minute, stop right there, we are throwing a flag and asking for some instant replay. In addition to being…
Morning Gold Fix: July 30 And Contango Crush
by Zero Hedge - July 30th, 2010 9:23 am
Courtesy of Tyler Durden
Submitted by www.fmxconnect.com
Contango Crush?
Yesterdays’ activity showed the Q/V spread coming in while the market gyrated a little higher as this time it was Q longs who were the aggressive liquidators. Rumors however still abound about delivery issues. Observably, the majority of spreads continue to come in as the market rallies. It can’t be emphasized enough. The cost of carry should not come in on a financial spread as the underlying rallies, as evidenced in the Contango Crush here.
For gold: Cost of carry = risk free interest rate + storage costs for the time period.
When a market rallies eight dollars, and bonds are essentially unchanged spreads should move out slightly or remain unchanged. Settlement noise can be forgiven in less liquid markets, but really…..when M12-Z13 comes in by 2.00 I gotta say something is off.
For the last year spreads have behaved appropriately: rallying when the market rallies or bonds collapse, decreasing when the market drops or bonds rally. But for the last month the term structure has over performed to the downside significantly more with less volatility than normal. I think the issue may be real or at least it is being managed like it is.
Word to the wise though. Even if a gold squeeze is coming , the market is far too easy to “manage” by the big guys, so if the risk is real and a squeeze is coming, don’t expect a spectacular move, expect government involvement BEFORE it happens in the back end. Call it Eminent Domain. Like in LTCM, to keep things calmer they might just roll it back and keep deferring the issue out the curve hoping the cyclical nature of the economy solves the problem. Why not, Mark- to-Myth accounting and ZIRP policy give them infinite balance sheets. It’s what their policy is for the whole credit crisis anyway. If that fails, bet on fiscal changes to make owning gold difficult, probably though higher taxes on bullion or something we aren’t thinking of yet.
-Elizabeth Thawne
Summary
Gold opened Thursday’s trading at $1163.8 per 100 troy ounces. Once again, the metal held relatively steady, with minimal volatility in pricing, moving over a range of just over $10. It closed out the day with modest gains at 1168.4.
August gold was up 4.2…
2 Year Treasury Hits Fresh All Time Low Of 0.5461%
by Zero Hedge - July 30th, 2010 8:51 am
Courtesy of Tyler Durden
And this is happening even despite the very appropriately named Bullard telling CNBC that he calls “for a plan to have significant easing if the situation arises” in essence guaranteeing QE2.0. Today’s GDP report has just confirmed that another round of dollar debasement, long expected by everyone at Zero Hedge, is now inevitable. And with the ECB actively “easing”, better known as printing, as well, the race to the currency bottom, now well in the second to last lap, is starting to get interesting once again.
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
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