Taking Stock

Yesterday’s whipsaw trading has the markets consolidating a bit today as they try and reconcile the implications of both the European credit concerns and the resulting price action.  Weekly jobless claims of 435,000 were certainly a welcome bit of bullish economic news from the Department of Labor.  The corresponding 10,000 decrease in the 4-week moving average further supported the notion that job losses are stagnating, though the absolute level of both data points does not imply that job growth is occurring.  Also, with retailers moving up the beginning of the holiday shopping season this year in an effort to generate additional sales, there is likely a fair amount of temporary, seasonal employment that is being pushed into the late October/early November time period.  This could be one of the primary reasons why the numbers look a little better than expected.

According to the Census Bureau, the U.S. trade deficit shrunk during the month of September to $44 billion from $46.5 billion in August.  Exports were robust during the period, though likely aided by the weakness in the U.S. Dollar at that time.  If the Dollar is, in fact, bottoming, as I suspect it is, I wouldn’t be surprised to see the trade deficit begin to creep up once again as the November numbers are released.  According to the Bureau of Labor Statistics, import prices during the month of October climbed 0.90% due in large part to climbing energy and agricultural commodity prices.  This trend continued on the export side of the ledger as well as prices climbed 0.80% during the period.  Again, the Dollar’s weakness during October helped to spur this rise in commodity prices, though demand from emerging economies cannot be discounted as well.  To be sure, this is a sign that inflation could be imminent in the not too distant future.  However, this is the first pick up in import/export prices since April, so it’s too early to say that this is, in fact, a trend reversal.  And should the U.S. Dollar prove resilient over the coming months, this will go a long way towards capping these commodity-specific inflationary concerns.

For the rest of the day I’ll be watching the long end of the Treasury curve quite closely.  Early trading suggests that the disdain that manifested itself yesterday is continuing, though at a somewhat less ferocious rate than was seen in the previous session.  I wouldn’t be surprised if this morning’s import/export numbers were adding some inflationary concerns to the Treasury mix as well, though I still view these concerns as fleeting for now.  Also of interest today will be the performance of gold.  After pulling back late in yesterday’s session, it seems that the yellow metal is seeing some light selling again this morning.  Given the scale of the rally in the Dollar Index yesterday, the resiliency of gold was quite impressive and certainly a positive development for the bulls.  I still remain short gold for now, though yesterday’s action was a bit concerning.  This gold market has simply been relentless in its march higher and it’s got to have a correction sooner or later.  Hopefully I’m not stopped out of the trade when that correction finally shows up.

Until later…..