ECB's Trichet's Head Fake/Market Summary

The market was mixed today as the DOW seemed to breath a sigh of relief that the jobs report was just bad instead of hideous.

The economy lost another 62,000 jobs last month. this was the sixth consecutive month of job losses.

Here is the data from Bloomberg

"July 3 (Bloomberg) -- U.S. employers cut jobs for a sixth straight month and service industries shrank in June, signaling that the economic slowdown may deepen as the impact of federal tax rebates fades.

Payrolls fell by 62,000 after a 62,000 drop in May that was greater than first reported, the Labor Department said today in Washington. The unemployment rate held at 5.5 percent after soaring the most in two decades in May. The Institute for Supply Management's non-manufacturing index sank to a five-month low.

Falling employment, along with record gasoline prices and tumbling home values, may cause consumers to tighten their budgets after spending the more than $100 billion of tax rebates. The longest string of payroll declines since the economy was pulling out of the last recession indicates limited scope for a Federal Reserve interest-rate increase this quarter."

Quick Take:

Many people feared that we could have seen a six figure job loss print today. The markets rose on the 62k loss but lets get real folks, this is not good news. The unemployment rate remained unchanged at 5.5%.

Government hiring was plus 29,000. When are they going to realize that we need to stop spending money as we head into a recession? My taxes are high enough. I am already paying to bail out Wall St. and it bothers me when I see DC's payroll rise each month.

ISM worse than expected(same link)

"The Tempe, Arizona-based ISM said its index of non- manufacturing businesses, which make up almost 90 percent of the economy, decreased to 48.2, the lowest since January, from 51.7 in May. A reading of 50 is the dividing line between growth and contraction. The median projection was for a decline to 51."


Recession here we come! Whats frightening here is we contracted in June while the government was in the middle dropping money out of helicopters in the form of stimulus checks.

Whats this number going to look like when the checks stop with $145 oil? Yikes!

The Trichet "Head Fake"

Explaining todays trading action is very easy. Trichet was expected to raise rates a 1.4 point and warn of higher inflation and the potential of more rate hikes. Trichet pulled the trigger but did a head fake on further rate hikes.

"July 3 (Bloomberg) -- European Central Bank President Jean- Claude Trichet played down prospects of further interest-rate increases, saying the quarter-point move today will help bring inflation back below 2 percent.

``Today's decision will contribute to achieving our objective,'' Trichet said at a press conference in Frankfurt after the ECB raised its benchmark lending rate to 4.25 percent. Trichet said he has ``no bias'' on further moves.

The euro slumped against the dollar and European government bonds rose after Trichet's remarks. The ECB is weighing the risk that higher rates will exacerbate an economic slowdown against the danger that the fastest inflation in 16 years will feed into wages and prices.

Trichet ``suggested they currently have no plans to raise interest rates again,'' said Dario Perkins, an economist at ABN Amro NV in London. ``Of course, that doesn't rule out further moves. It will depend on what happens to inflation and, more importantly, inflation expectations.''

My Take

So today's trade in the market was easy. Trichet's cut was baked in the cake but his softer language on further cuts was a bit of a surprise. As a result, the US dollar strengthened, oil then dropped, and stocks popped a bit.

Bottom Line:

The market was very worried today that there would be horrible news on the employment and interest rate front.

This didn't materialize. Things were just "bad" not "horrible". Needless to say, the problems in our economy still persist and should continue to weigh on the markets.

At least everyone can relax for the 4th! I will be around for the 4th so I may find a nugget or two to post on here over the next few days.

Have a great holiday.