Mixed Bag – June 10th, 2009

June 10th, 2009 – Mixed Bag

Following last week’s seemingly endless parade of economic reports, this week may appear a bit empty on the fundamental side. One key highlight for this week will be the retail sales number due out on Thursday. Other than that, there will be fewer economic reports to sift for clues. Recovery was on nearly everyone’s lips last week as some reports came in above expectations. Employment and housing may not be turning positive any time soon; however, the analysis seems to point to the possiblity that the bottom was already formed. Despite light economic data, the market is still trying to digest events within the auto industry, as well as the growing pessimism regarding the record debt that seems to be accumulating.

Appeals for blocking the Chrysler-Fiat deal will not be heard by the Supreme Court, allowing for the possibility that the company can proceed with attempts to climb out from a very big hole. That news brought a positive spin early this morning. That optimism appeared to be nearly banished by rising oil prices and a larger than expected trade deficit. Weaker demand for US exports is cited. Swinging in the other direction, Home Depot announced that they were raising their profit forecast. Throw the recent discussions regarding a possible interest rate hike into the mix and choppy trade ensues.

The argument regarding interest rate increases seems to be pulled between the idea that inflation could take root quickly in the face of recovery and the alternate idea which suggests that any rise in interest rates would halt recovery in its tracks. Treasuries have reacted sharply to the debate. This comes despite the frequent pledge by the Fed to hold things at low levels for an, as of yet, undetermined span of time. According to an LA Times story on the issue, futures traders are delivering a 42 percent probability that the rate will be increased at the November Fed meeting.¹  The key to the argument may be found in the chance that the start of recovery will materialize before then.

Employment issues and consumer debt will likely still provide the evidence to the overall well-being of the economy. Foreclosures and job losses – however slight – may still point to the possibility of continuing trouble. Even if tomorrow’s retail sales number for May beats the analysts’ projection of a 0.3 percent gain, profitability may be weak. Deep discounts and high debts for some retailers might weigh on overall revenue growth. Solvency will be the thing to look for.

1 http://www.latimes.com/business/la-fi-treasury-yields9-2009jun09,0,5228142.story