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Thursday, October 29, 2009

Morning Market Report

There's so many numbers for the market to chew on. First, and foremost, the third quarter Gross Domestic Product number came out. It's the broadest economic number there is. The economy grew by 3.5% in the third quarter. That's not only a great number but slightly above estimates, which were about 3.2%. It's important to remember that we've had four straight quarters of losses and so the economy still has a lot of making up to do. This is, however, the clearest sign that we are beginning a recovery. The weekly first time claims also came out and they were down a thousand to 530,000. That number continues to be between 500-600k and it doesn't appear to show much pattern. On the earnings front, Exxon Mobil had weaker than expected earnings and the stock is down about one percent in pre market trading.

The Dow suffered through it third straight day of losses yesterday. It lost 119.49 yesterday and dropped into the 9700 range. The NASDAQ and S&P weren't any better. The markets are, however, responding positively to the GDP numbers and the dow looks to open about 60 points higher at the open. Meanwhile, Treasury bonds are likely to break their mini streak. The ten year U.S. Treasury reached 3.40% but it's now back to 3.45%. The yield spread between the two and ten year is now at 2.49%. Bonds in Britain are currently relatively unchanged while they are giving back as much as six basis points (six hudredths of a percent) in Germany.

Meanwhile, crude oil is up just slightly to $77.58 a barrel, and so it's not responding quite as much as everything else has been to the economic data. We had mirror images in Europe and the Far East. The Far East is down across the board and in Europe they were up across the board. The Hang Seng in China was down 2.28%, the NIKKEI in Japan was down 1.83%, and the Straits Time Index was down .63% and the broader Chinese index was down 2.34%. In Europe, the FTSE in London was up .81%, the DAX in Germany was up 1.3%, and the Spanish index was up .87%. (I should note that some of these markets are still open so some of these indices are is)

The Dollar isn't necessarily responding that well to the GDP numbers. The dollar is down .59% against the Euro, down .59% against the British Pound, but up by .76% against the Japanese Yen.

Epilogue:

It's important to note that technically a recession starts when there's two quarters of negative growth. That means the recession technically started at the end of the first quarter this year. Still, most said it started at the end of 2007. Recessions technically end after two straight quarters of growth. So, technically, the recession will end at the end of the year. Yet, most economists will say the recession ended sometime at the end of the summer. I usually go with the textbook definition of a recession. That's how I learned it in high school, but economists seem to make up their own rules.

Also, an Edmonds study said that cash for clunkers cost about $24,000 per car to the tax payer. Another study says that the first time home buyer credit costs the tax payer about $64,000 per purchase. Both of these had stimulative effects and their stimulus was felt in the third quarter. It remains to be seen if this was an artificial stimulus or if it stimulated the economy in real terms. Future GDP numbers will tell us that.

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