Thursday, May 6, 2010

Stock Market or Market System?

Today we saw unprecedented volatility occurring within a few minutes. The explanations coming out of news services leave me unsatisfied that there is anyone taking time to think before they publish something. I suppose there will be time for that later. Now however, there are some observations being made that make me wonder. The financial crisis in Greece is the easiest and most obvious topic area for initial focus. But there has actually been some signs of responsibility from the government of Greece in that they passed an austerity plan yesterday to show good faith to the world, that they will begin to spend less beginning now. Greeks are rioting in the streets on that but they are not investors who can move the markets. Is this an example of "buy the rumor, sell the news"?

There have also been reports of errors being made on trading systems. This news is going to take awhile to get facts on. Here is the beginning of a report, based on rumors, from CNBC, always fair and factual... LOL, In one of the most dizzying half-hours in stock market history, the Dow plunged nearly 1,000 points before paring those losses—all apparently due to a trader error.

So far, here are pieces of today's news, all from Bloomberg, that covers the bulk of what might have influenced markets today.
May 6 (Bloomberg) -- U.S. stocks tumbled the most in a year on concern that Europe’s debt crisis will halt the global recovery. The selloff erased $1.25 trillion in market value as the Dow Jones Industrial Average fell almost 1,000 points, its biggest intraday loss since 1987, before paring losses.
The Dow average ended the session down 347.8 points, or 3.2 percent, at 10,520.32 at the 4 p.m. close of trading in New York. The Standard & Poor’s 500 Index fell as much as 8.6 percent, its biggest plunge since December 2008, before trimming declines to end at 1,128.15, down 3.2 percent. It was the biggest drop since April 20, 2009, for both measures.
“It’s panic selling,” said Burt White, chief investment officer at LPL Financial in Boston, which oversees $379 billion. “There’s concern that the European situation might cool down global growth and freeze the credit markets.”
New York Stock Exchange spokesman Rich Adamonis said “there were a number of erroneous trades” during the plunge. The NYSE told CNBC that there were no system errors as speculation of erroneous trades swirled through the market.

Here is a news release describing the Productivity and Costs Survey Report:
Productivity growth slowed in the first quarter while the recent decline in labor costs came to a near halt. Nonfarm business productivity rose an annualized 3.6 percent in the first quarter after a 6.3 percent surge in the final quarter of 2009. Analysts had forecast a 2.6 percent gain in productivity. Unit labor costs slipped an annualized 1.9 percent in the first quarter, following a fourth quarter drop of 5.6 percent. The market projection was for a 1.0 percent dip in costs.

The easing in productivity growth was largely due to less robust output growth and was largely expected, given the slowing in GDP growth. Output in the nonfarm business sector advanced 4.4 percent, following a 7.0 percent spike the prior quarter. The good news in the report is that hours worked has risen modestly for two quarters, indicating some improvement in demand for labor. Hours worked increased 0.8 percent in the latest period after edging up 0.7 percent in the fourth quarter. While modest, these gains are in sharp contrast to large declines in prior quarters.

Year-on-year, productivity rose 6.3 percent in the first quarter-an improvement 5.6 percent in the prior quarter. Year-ago unit labor costs slipped to minus 3.7 percent from minus 4.6 percent the previous quarter.

Both productivity and costs were a little better than expected. This is good news for the Fed, which needs to see a continuation of subdued inflation pressures. Equities were up slightly on the news.

Here is a news release describing the Jobless Claims Survey Report:
Unemployment claims improved for a third straight week but far from dramatically. Initial claims for the May 1 week fell 7,000 to 444,000, pulling the four-week average down 4,750 to 458,500. The prior week was revised 3,000 higher to 451,000. Continuing claims for the April 24 week fell 59,000 to 4.594 million, though the four-week average for this reading rose slightly to 4.649 million. The unemployment rate for insured workers is unchanged at 3.6 percent.

Month-to-month comparisons show very little change and are not strongly supportive for expectations of incremental improvement in tomorrow's employment report. Markets are showing no significant initial reaction to today's results.

Here is a news release describing the Chain Stores Survey Report:
The Easter calendar effect proved more negative than expected for April, making for disappointing sales that point to an end of six straight months of gains for the ex-auto ex-gas category of the Commerce Department's retail sales report. But March, which benefited from the early Easter, was unusually strong and when taken together with April point to a favorable sales trend. Many chains went out of their way in today's statements to reaffirm the run of upward guidance they issued following the burst of sales in March. Chains also cited wet weather effects in the Southeast and the West. Share prices for most chains are moving lower in early trading.

Observing trends on the currency charts displayed here is no more illuminating, although there is a trail showing something definitely caused enormous disruption very quickly. The Yen was very strong, up 6% against the US$. Alternatively, the Australian dollar sunk 3%, the Canadian dollar slid 4% and the Euro shed 1% during the same time frame compared with the US$. Another indicator is the VIX, the so called worry meter, still very high, at 32.8 after ballooning 31% today. Gold was up and US Treasuries were too, the classic fear/deflation trade. Something happened today, that is certain.