After a rocky start to trading and a sharp drop at the open the markets have recovered to trade in the green once again. The opening dip was bought and the indexes are on the verge of moving higher after a couple hours of consolidation.
Investors refined their bets over the February NonFarm Payrolls due out tomorrow after the jobless claims for last week came in at 469,000 and a -29,000 drop from the prior week. After three snowstorms in February disrupted the employment process and pushed claims to 498,000 in the prior week analysts believe this was the beginning of a return to the new normal. The jobless claims were right on the consensus forecast and did not materially impact the estimates for the nonfarm payrolls due out on Friday. The consensus estimate is currently for a loss of 50,000 jobs in February. There are whisper numbers as high as 100,000 job losses and almost nobody expects job gains.
Productivity numbers for Q4 were also released showing a slight rise to 6.9% compared to 6.2% in the preliminary report. Unit labor costs fell -5.9% compares to the previously reported -4.4% drop. With unemployment high there is no inflation in wages and productivity is very high. This is the largest year over year increase in seven years. This high productivity is adding to corporate profits and should continue until unemployment returns to a normal range and wages begin to rise. Unit labor costs fell -13.7% in Q3. For the full year Q4-2008 to Q4-2009 unit labor costs fell -4.7% and the largest yea over year decline since 1948.
Factory Orders rose +1.7% in January and exactly matched consensus estimates. This followed a rise of +1.5% in December and was the third consecutive monthly gain. However, orders for core capital goods ex-aircraft fell -4.1% and shipments fell -1.7%. Inventories rose by +0.1% as in December and the first consecutive monthly increase since mid-2008.
Pending Home Sales declined by 7.6% in January with the western region seeing the largest drop of 13.2%. The drop was a continuation of the fallout from the end of the first homebuyer tax credit program and sales year over year are still up +12.3%. The snowstorms and blizzards have hampered the resumption of buying now that the program has been restarted but March and April should be very strong.
Despite the snowstorms the Chain Store Sales for February posted their biggest jump in sales since 2007. February sales rose +3.7% compared to 3.1% in January and 3.6% in December. After months of lackluster sales declines or marginal increases the sudden surge over the last three months and in the face of bad weather may be a strong indication that the consumer recession is finally over. Apparel stores saw a big gain at +6.8% with luxury apparel rising +7.6%. On the opposite end of the spectrum wholesale clubs posted a 8.8% gain while discount stores rose +4.0%.
The treasury Dept received $1.54 billion from the sale of warrants it received from Bank America's participation in the TARP program. The Treasury sold the 272.17 million warrants in an auction because BAC and Treasury could not agree on a price to buy back the warrants. The $1.54 billion was the largest amount received from the governments TARP recovery program. Warrants on JPM brought in $936.1 million and Goldman Sachs warrants raised $1.1 billion. The Bank of America "A" warrants allows the owners to purchase a BAC share for $13.30 any time before January 2019. The class "B" warrants allowed a purchase at $30.79 per share through 2018. The class "A" warrants sold for $8.35 per share, which means they will be in the money at $21.65, the strike price plus the premium paid. The B warrants sold for $2.55 putting their in the money price at $33.34.
Greece raised Euro 7 billion ($9.5 billion) with a new bond offering on Thursday. The bond offering was oversubscribed, which means there were more bids received than bonds sold. This is a very promising event and showed that investors believe the austerity measures enacted this week will lead to a better financial outcome for holders of Greek debt. Of course we don't know how many of those bonds were bought by the state banks of other EU countries in a secret effort to support the Euro currency. Regardless of the amount the Greek debt crisis appears to be over at least for the time being. Greece still needs to borrow $74 billion through the rest of the year with $27 billion in debt maturing in April and May.
After returning to positive territory at midday the indexes are about to go negative again in early afternoon. After two days of giving up strong morning gains this pattern is becoming increasingly bearish. With the nonfarm payrolls before the open on Friday we could see another sell off into the close as traders move to the sidelines in an effort to avoid Friday's expected volatility.
The S&P is still above the prior resistance at 1115 but only by a couple points. After reaching an intraday high at 1123 the index is struggling to hold in positive territory.
The NYSE Composite index is still holding over the critical 100-day average resistance at 7106 but the red candle is a warning that the advance may be fading. A drop back below the 100-day should find support around 6950 but then be faced with a new breakout challenge.
NYSE Composite Chart
The Russell is right on the verge of slipping back below the critical 650 level and a failure here could easily setup a double top. The advance from prior resistance at 623 came after several days of consolidation and that could be what we are seeing at 650 as the index struggles to overcome profit taking from the four-week rally. I am not ready to write off the rally yet with the weakness probably related to the nonfarm payroll report on Friday but a decline back under 650 tomorrow would be bearish.
Russell 2000 Chart
Overall I would be very happy to have the indexes close where they are right now and fractionally positive. However, I would be surprised it that were to happen. With the nonfarm payroll report looming on Friday there will likely be profit taking at the close.