January 20, 2011

Yesterday the S&P suffered its largest single day loss since the Jackson Hole meeting in August, falling 1.0%. The largest pullback had been 0.3% during this rally. Today the markets are continuing their softness, although the early weakness has been tempered by better than expected initial jobless claims, which came in at 404K vs. expectations of 420K. The LEI posted an increase on better orders of 1% vs. expectations of a 0.6% increase. Existing home sales jumped 12.3% vs. an expected increase of 4.1%, and the Philadelphia Fed Index came in at 19.3 vs. expectations of 20.8.

Earnings will be in the headlines the next couple of weeks. This morning Fairchild Semi, Freeport McMoRan, Parker-Hannifin, and Morgan Stanley reported positive earnings while GATX, Huntington Banc, Knight Capital, and Meridian Biosciences reported weak numbers. Last night F-5 missed number, guided below the street, and is opening down 20% this morning.

The Central Bank of Brazil increased their lending rate by 50bps to 11.25% from 10.75%.

The Congress voted yesterday to repeal Obamacare. Full repeal is unlikely since the Senate probably won’t go along with the vote, and if they do the President certainly would veto it.

The Premier League and UK authorities are closer to an agreement which will require soccer clubs to pay millions of pounds to curb players tax bills.

While the West Texas Intermediate used in the US sits at $88 per barrel, lower sulfur crudes such as Bonny Light and Tapis have risen to over $100 on strong demand from China and India.



Spain is moving quickly to recapitalize their savings banks (cajas) to avoid an international bailout. The Journal is reporting that a $4 billion offering will be made this week.

Asian markets were down over 1% last night on continuing concerns about inflation in China. Investors are concerned that the government will need to further tighten economic policy to control inflation.

The Economist is reporting that the amount of energy required to produce a unit of domestic product is declining almost everywhere as energy intensity is converging in most major economies.

Have a great day

Ned