Morning Report

Posted on October 27, 2011 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1266 28.6 2.31%
Eurostoxx Index 2464.6 129.540 5.55%
Oil (WTI) 92.98 2.780 3.08%
US Dollar Index (DXY) 75.502 -0.715 -0.94%
10 Year Govt Bond Yield 2.28% 0.08%

Stock markets are rallying on news that the Europeans have come to an agreement to deal with Greece, with bondholders taking a 50% haircut and boosting the rescue fund to 1 trillion euros. Is this the silver bullet that will solve this problem once and for all? The initial take seems to be no. The bigger question will be whether this quarantines the Greece problem or does the contagion spread to the rest of the PIIGS. For the moment, the markets are breathing a big sigh of relief.

3Q GDP came in with an annualized increase of 2.5%, more or less in line with the economists survey. Consumption came in higher than expected (2.4% vs 1.9% expected), which tells us there is a growing discrepancy between what consumers feel (as shown in the consumer confidence numbers) and what they actually do (as evidenced by spending numbers). As I have discussed before, this is how recessions end – consumers don’t start spending because they want to, they do it because they have to. Eventually the 10 year old car becomes too expensive to fix, Dad’s 5 year old dress shirts become ratty, and need to be replaced. The other headwinds in the economy will undoubtedly overpower any consumer strength for the moment, but those headwinds are becoming milder as time goes on. I am not buying the double-dip recession thesis. Just not buying it.

In other data, the labor market is still stuck, with initial jobless claims above 400k again and continuing claims at 3.65 million. The labor market is always the last to improve.

Chart: Initial Jobless Claims:

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