Weekly Economic Report

Market

The Dow finished slightly higher at the end of this shortened trading week. High volatility persisted in spite of low volume. The market droped over 180 points on Tuesday but recovered those losses by Thursday. Trading was flat today with the Dow closing down about 12 points. The longer the Dow can tread water around 11,200, the better. The downward treadline is still very steep and keeping people nervous. The Economist has picture of a bear hiding behind a tree on the cover. The caption is, "Which Way is Wall Street?" I imagine it will consilated here between 11,000 and 11,300 for a while before the next move down.

Data

Initial unemployment claims were higher than expected this week. Inflation looks to be under control, as today's hourly earnings report came it at 0.1% when 0.3% was expected. This fueled suspicion that the Fed will now pause its rate hike cycle. The market didn't get much of a boost from that however. The shocker came at the end of the week with new non-farm payrolls coming in at 75K when 180K was expected. There was also a spike in temporary labor, up 229K in May. Unemployment came in at 4.6% after 4.7% was expected. But the non-farm payroll number sent a shock into the currency market, cutting the dollar down 1% in 1 minute....

Dollar/Euro

I said a couple of weeks ago to expect the EUR/USD to stay between $1.26 and $1.30. Last week I mentioned that $1.27 was providing good support. That continued, and the range has tightened to $1.27 and $1.29. A range traders paradise, bouncing between the two. The last time it bounced off of $1.2720 this morning, it lingered right at $1.28 all day until the non-farm payroll number came in and it hit $1.29 in one minute and met stiff resistance, backing off to $1.2875. Now it has broken the $1.29 barrier and the Euro is currently trading at $1.2920. I still think that a correction down to about $1.25 will come, but short term, we could see further dollar weakness.



The market is volatile and nervous. The bears are in the midst, but they haven't made the big move yet. Bernenke speaks twice next week, the first time on Monday before the senate panel. Hawkish comments from him could lead to a recovery for the dollar and more problems for Wall Street in anticipation for further rate hikes. I didn't get the final number, but the 10 year note dove under 5%. If it closes under 5% it would be the first time the overnight rate and the 10 year were thus inverted.

Oil spiked 3% today to close over $72 a barrel on news of a kidnapping on a Nigerian oil rig, and doubts about a resolution to the Iranian issue.

Jittery all the way around. Real signs of weakening in the high end real estate market are adding to a general uncertainty about the future. We are in a place where volatility can take hold and do real damage. That is not to say it is for certain. So far, for the last week anyway, what seems to be inevitable has been delayed. The volatility has canceled itself out. Lucky so far.

The next month or two are crucial.