Today we received the US Advance GDP Estimate - and it was a shock. This report was expected to be lower than the previous quarters 3.1% gain, but a negative 0.1%, down from an estimated positive 1.1% was indeed a surprise. The report claims the negative number was caused by a decline in company inventories, and reduced military spending. Granted, this is the original GDP estimate, and there will be two more GDP reports for the 4th quarter that will revise the numbers.
Consumer spending in the quarter was strong, up 2%, but can we expect this going forward? There has been a 2% increase in the amount of Social Security taxes that reduces the take home pay of all those that collect a check, and the cost of gasoline in the US is up more than 10%. This combination of inputs probably caused the US Consumer Confidence Index to drop from 66.7 to 58.6, as announced yesterday. This is the lowest the Consumer Confidence has been since December 2011.
It is interesting to note that last quarter's deficit spending in the US did not produce the Keynesian multiplier effect. During the 4th quarter of 2012, the US added $312B to the debt, and the GDP was reduced by $4.9B.
Later today, we get the notes from the FOMC meetings, and it is expected the report will show the intent to continue to expand the money supply. It is becoming more evident that the QE policies of the Fed are helping the banks and brokers, but the citizens on Main Street continue to lag behind.
The USD continues to lose against the euro, which easily conquered the 1.35 handle on the way to higher ground. Lost, perhaps, in today's trade was the Spanish 4th Quarter GDP which came in at a negative 0.7%. Considering they have 27% unemployment and are suffering from a heavy dose of Frau Merkel's austerity plan, the -0.7% reduction does not look too bad.
Today there was an opinion article by Matthew Lynn in Market Watch, "The real euro crises is just starting." It is his opinion that solving the bank crisis is the easy part, and that is over. I do not agree with that totally because there is also still a debt crisis, and this has not been solved. I, however, digress. Lynn says:
"In reality, the real euro crisis is only just starting. It began as simply a financial crisis. The second phase, however, will be an economic and social crisis, and that will be a lot harder to solve."
Currently, unemployment in Spain and Greece is about 27%, Portugal 17%, Ireland 14.6% and France and Italy about 11%. The austerity demanded by the EU and the IMF means that companies are still shedding jobs. Youth unemployment is much higher, and they have the potential for being a catalyst for social unrest.
Lynn contends when this happens Spain and Greece will leave the euro, and there will be " turmoil in the markets. January rallies in Europe stocks are very common. In 11 of the last 15 years, share prices have been up significantly in the first month of the year. But in the face of a deepening recession, and mounting opposition to the costs imposed on societies, it will be impossible for the rally to be sustained."
The rally in the euro has been going on for a while and notice on the weekly chart that the market has rallied to the 200 week SMA, and the RSI at about 67 is high. This is not to say the rally cannot go further, usually it will go until we get the last bear out. We note in the futures market the open interest has grown from around 200K contracts at the beginning of the year to 238K, currently. In time, the peripheral countries will be hurt by the higher euro. Currently, we prefer to watch this pair from the sidelines.
Consumer spending in the quarter was strong, up 2%, but can we expect this going forward? There has been a 2% increase in the amount of Social Security taxes that reduces the take home pay of all those that collect a check, and the cost of gasoline in the US is up more than 10%. This combination of inputs probably caused the US Consumer Confidence Index to drop from 66.7 to 58.6, as announced yesterday. This is the lowest the Consumer Confidence has been since December 2011.
It is interesting to note that last quarter's deficit spending in the US did not produce the Keynesian multiplier effect. During the 4th quarter of 2012, the US added $312B to the debt, and the GDP was reduced by $4.9B.
Later today, we get the notes from the FOMC meetings, and it is expected the report will show the intent to continue to expand the money supply. It is becoming more evident that the QE policies of the Fed are helping the banks and brokers, but the citizens on Main Street continue to lag behind.
The USD continues to lose against the euro, which easily conquered the 1.35 handle on the way to higher ground. Lost, perhaps, in today's trade was the Spanish 4th Quarter GDP which came in at a negative 0.7%. Considering they have 27% unemployment and are suffering from a heavy dose of Frau Merkel's austerity plan, the -0.7% reduction does not look too bad.
Today there was an opinion article by Matthew Lynn in Market Watch, "The real euro crises is just starting." It is his opinion that solving the bank crisis is the easy part, and that is over. I do not agree with that totally because there is also still a debt crisis, and this has not been solved. I, however, digress. Lynn says:
"In reality, the real euro crisis is only just starting. It began as simply a financial crisis. The second phase, however, will be an economic and social crisis, and that will be a lot harder to solve."
Currently, unemployment in Spain and Greece is about 27%, Portugal 17%, Ireland 14.6% and France and Italy about 11%. The austerity demanded by the EU and the IMF means that companies are still shedding jobs. Youth unemployment is much higher, and they have the potential for being a catalyst for social unrest.
Lynn contends when this happens Spain and Greece will leave the euro, and there will be " turmoil in the markets. January rallies in Europe stocks are very common. In 11 of the last 15 years, share prices have been up significantly in the first month of the year. But in the face of a deepening recession, and mounting opposition to the costs imposed on societies, it will be impossible for the rally to be sustained."
The rally in the euro has been going on for a while and notice on the weekly chart that the market has rallied to the 200 week SMA, and the RSI at about 67 is high. This is not to say the rally cannot go further, usually it will go until we get the last bear out. We note in the futures market the open interest has grown from around 200K contracts at the beginning of the year to 238K, currently. In time, the peripheral countries will be hurt by the higher euro. Currently, we prefer to watch this pair from the sidelines.
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