Monday Report

June 6, 2011

Futures are flat this morning on a typically quiet summer morning as market participants are still trying to figure out the significance of last Friday’s job report. Perpetually bullish JP Morgan feels the economy has hit a soft patch, while others are more concerned about a more prolonged and serious slowdown. The primary argument for the soft patch links recent employment weakness to supply chain disruptions in Japan and domestic demand destruction resulting from skyrocketing gasoline prices. The optimistic views for a rebound by the end of summer cite the recent pullback in gasoline prices and Japan beginning to return to normal.

In spite of what has felt like a long and large correction, the chart below shows that the market has only pulled back 4.7% from its late April peak. The action since the beginning of the year has been a churning or consolidation. From a technical standpoint the market may have double topped and recently broken support. Interestingly, the last time the market had similar action was in late 2007, just before the recession began.



As a signal to incumbents presiding over weak economies, the ruling Socialist Party in Portugal was defeated in a national election last week. Protesters gathered in Greece for a 12th day to object to government austerity programs designed to help ease the country’s debt crisis.

Nobel Prize winner Peter Diamond has withdrawn his name from consideration for the Federal Reserve’s board of governors.

The UN released a report suggesting that governments may need to intervene in commodity markets to ease the bubble that has developed in certain commodities.

Michigan recently eliminated some tax breaks given to businesses and individuals as incentives to locate their business in the struggling state. Ohio and Oklahoma are both looking at similar tactics to close their gaping budget deficits.

M&A activity is quiet this morning, however, YTD the oil & gas industry has led the M&A action with over $82 billion in announced deals, slightly ahead of the telecommunications industry.

APAC markets were weak last night following Friday’s weak US market action. The Nikkei fell 1.2%, ASX 0.3%, Singapore Straits Times -1.1%, Sensex 0.2%, while Philippine shares rose 1.4%. Markets in China, Taiwan, Hong Kong, South Korea, and New Zealand were closed for a holiday.

Have a great Monday

Ned