Sunday, September 11, 2011

Market Thoughts for Week of Sep 12

Next week will be split up into two parts. First part of the week we will find out how the market can cope with Greek default and downgrade of French banks. The second part we will see how US economy is fairing.
Here is my outlook:

On Monday all eyes will be on Europe. There is a talk out of Germany that govt is considering letting Greece to default. I am absolutely fine with it and will say this: let's get it over with already. Market will digest it and move on. It is the uncertainty that holds the market back.
There is also a rumor of possible Moody's downgrade of French banks, due to Greek bonds held by them. I would not be surprised it being the truth, but it will be priced in by then, as it is all over the newswires this weekend.

On Tuesday I expect whatever weakness we had in the US stock market on Monday to be reversed.
There will be some inflation data out of UK. Their growth was anemic in Q2. Austerity has taken its toll. If CPI is high again, we will have some worries about UK economy. Stagflation is the worst thing that can happen. GBP is sliding further against the USD -1.60 is the line in the sand.

On Wednesday we will get the most important econodata of the week - US retail sales. It is no surprise why US is not in recession yet. Consumers are still shopping, albeit at slower pace in August. I am tracking the weekly retail sales reports, and they point to slowdown in August. Let's see if we had any growth at all shown in the monthly report. It will be very slow I bet. Negative number will absolutely crush the market.
We will also get PPI and Biz Inventories. PPI may have gone negative, thus giving Fed more reason to act in Sep meeting.

On Thursday we'll get more inflation data out of US in the form of CPI. There is just no inflation in US. Until our homes start appreciating in price, we are stuck in deflation.
U/E claims also out that day. Until we get them to stay below 400K consistently, there will be no peace for market.
Speaking of unemployment. I want to point out that US real unemployment is higher than 9.1% official headline number. I encourage everyone to study Table A-15, published monthly along with NFP by Bureau of Labor Statistics. Pay attention to U-6 please. It is at 16.2% and rising. This is the real unemployment number in US!
More importantly that day Empire State and Philly Fed Mfg Indexes are out. We are going to see if they are improving at all. Absolutely need some end of further cratering there.

On Friday we will see what consumers are thinking about the state of our economy in UoM Consumer Sentiment. Even a slight improvement will send market rallying.

For this matter slight improvement in all US economic data may rally the market hard. I have been a short-term bull scarred by Europe's mess. Their saga better have some resolution. We have a little bit of time to save US economy from going into recession. I am afraid Europe is already there. We have one of strongest (as funny as it sounds) economies out of G7, helped by our insatiable demand for consumer goods, contributing to 70% of our GDP. We are one huge shopping machine that keeps on going. If Europe derails our consumer shopping train by sending our stock market further into a tailspin, watch out world economies. Even China will not be able to pull us all out of the gutter.

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