Saturday, August 6, 2011

Market Outlook 8/5/11

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By Mike Conlon | August 5, 2011

Well it looks like we dodged a bullet this morning with the US Non-Farm Payrolls report that showed jobs growth of 118K vs. an expectation of 85K.  The unemployment rate ticked lower to 9.1% even though all of the recent data was pointing to a lower number.

Those of you who read my commentary know that when things appear to be at the worst, that is usually when you get an upside surprise!  Check out today’s Forex In Four video (at the 6-minute mark) where I explain how this works and why I went on record expected 125K jobs prior to the release.

So why are we dodging bullets, this far into the “recovery”?  Well the markets have been down 8 out of the last 9 days, with the crescendo hopefully taking place yesterday with the Dow down some 500 points.  This is a direct result of a slowing global economy, and the debt crisis still taking place in the Euro zone.

Yesterday after the ECB rate policy decision, they decide to do an about-face and go from a previously hawkish to dovish stance as both Spain and Italy are under attack by the bond market as yields continue to move higher which will eventually move to unsustainable levels and will require a bailout if something isn’t done to prevent this.  This sent the markets into a mini death-spiral.

And this is also emblematic of the ECB’s lack of attention to this problem over the last year.  As yields were being driven higher on the “3 little pigs”, the ECB did nothing until the problems got out of hand.  Now that Spain and Italy are in the cross-hairs, it may be too late to act and will assuredly cost more to deal with now as opposed to being preemptive.  It is very telling that laissez-faire comes from the French. 

So the markets are clearly relieved today though it will be interesting to see if this is enough to stem the tide of the Euro zone debt crisis, or if the market is looking for QE3 from the Fed.  Regardless, it may be tough for investors to take risk assets over the weekend, despite the massive selling we’ve seen of late.

The volatility in this markets sets up perfectly for short-term trading, and that’s what I will continue to do!




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