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Wednesday, August 12, 2009

Morning Market Report

There is breaking economic data news. The June trade numbers came out and the trade gap widened.

The U.S. trade deficit widened in June to $27.0 billion, as goods imports increased for the first time in 11 months on the back of higher oil prices, a Commerce Department report said on Wednesday.

Analyst surveyed before the report had expected the monthly trade gap to widen to around $28.5 billion. But stronger foreign demand for U.S. goods and services offset some of the impact of the oil price increase on the deficit.

Normally, there are many ways to read this number. For instance, one way to read it is to say that consumers are spending more than their counterparts in the rest of the world. That would be a sign of an improving economy and certainly improving consumer confidence. In this case though, this particular number shows the impact that gas prices have on the rest of the economy. That's because this gap is built entirely on increasing oil prices.

On that note, oil has tumbled the last couple days and it should open below $70 a barrel for the first time in nearly a week. It's currently trading at $69.56. The biggest movement yesterday was in Treasury bonds. The ten year U.S. Treasury bond lost nearly ten basis points yesterday (about one tenth of one percent) and is currently trading at 3.65% after being above 3.8% at the beginning of the week.

There's a great part in the book, Liar's Poker, that describes analysis yesterday. In Liar's Poker, after a big day, Lewis, the author, asks his mentor why the market had gone up. His mentor said that a wealthy Saudi Sheikh had been moving a lot of money into the market. Lewis was startled. Was this true? His mentor then scolded him that of course it wasn't true. A Saudi Sheikh is always referenced when the market moves and no one can explain it.

That's sort of what happened yesterday. All major equity indices went down while bonds got better. The explanation was "renewed fear" of an economic malaise. Of course, there's always fear of an economic malaise. So, that to me, sounds like the equivalent of a Saudi Sheik. The markets made a move and no one had an explanation so one was created.

Meanwhile, I misspoke yesterday when I said that the Fed was going to announce their interest rate stance yesterday. That will come out today. Markets are basically even going into the trading day. You can bet that there will be plenty of volatility following the announcement however.

Meanwhile, markets in the Far East were down nearly across the board. The Hang Seng in China was down 3.03%, the Japanese NIKKEI was down 1.42%, and the Straits Time Index in Singapore was down 1%. In Europe, it was nearly the reverse and all major indices were up. The FTSE in London was up .25%, the DAX in Germany was up .61%, and the Spanish Index was up .14%.

Currencies are quiet this morning. The Dollar is down agains the Euro by .14%, it's up .01% against the British Pound, and it's down .22% against the Japanese Yen.

Finally, according the Wall Street Journal, 59% of economists surveyed say the recession is over and more than 9 in ten credit the Fed Chairman Ben Bernanke and would like to see him nominated for another term.

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