Thursday, 15 December 2011

Bullish economic data, just in time to save equity markets

Just after a major sell-off in precious metals (during which I was stop-loss-ed) and a slump in the S&P and the Dow, "good news" about the health of the economy surfaced: the initial and and continuous unemployment claims printed lower than expected, the the Producer's Price Index (PPI) signaled a mildly increasing inflation, an increase in manufacturing orders from -2.07 to 5.10 and a lower overall current account deficit. This coupled with FED chairman Bernanke's faith in the strength of the US economy suggests that the economic outlook has to get a lot worse before he will pull out more monetary firepower.

Unemployment claims

According to the data released by the US Department of Labor, seasonally-adjusted initial claims decreased by 19,000 from its previous week's revised figure of 385,000, thereby confirming its downward trend. The unadjusted number of initial claims somehow dropped 95,506 to a total of 433,287. The total number of people claiming benefits (keep in mind that the number of people out of work is probably higher) reached 7,449,507 this week after it increased by 874,640.

Even taken with a grain of salt, the unemployment data suggest a mild recovery of the US economy. The trend in unemployment rate is positive, even though the current figure of 8.6 is still high. From Bloomberg:

Seasonally-Adjusted US Unemployment Rate

Wholesale Prices November

The so called core-measure of prices paid to US wholesalers (excluding the most volatile elements which are food and fuel), called the core-PPI rose by 0.1 less than the estimated figure of 0.2. The Producers Price Idex increased 0.3 percent, due to an influence in food costs which edged up by 1 percent. The 1% increase in food prices seems to be attributable to the seasonal effect, but this doesn't discount the fact that inflation is creeping up. 

US Current account balance

The current balance deficit, which is computed as the sum of trade balance, the net foreign income and the current account decreased in Q3 by $14.4 billion, to $110.3 billion. A great deal of this shrinkage in the current account deficit is accountable to the decrease in the goods and services trade deficit, which printed at $135.6 billion, down from $146.2 billion. 


While the economic data reported today are rather bullish and signal a mild recovery of the US economy, the possibility of a double dip, because of a massive EU contagion (through the financial system), still looms at large. I am staying out of Gold for now (the chart looks awful from a technical perspective and with no rumors of more monetary easing it will certainly be tough for it to go further than a dead cat bounce back to 200d EMA), and have updated the S&P short stop-loss to $1258.

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