Market Commentary

Stocks were crushed yesterday from sovereign debt fears
February 05, 2010

Stocks were crushed yesterday from sovereign debt fears, Chinese attempts to slow their economy and domestic job concerns.

Regarding sovereign debt fears, markets are concerned about massive deficits and the perceived lack of political/social will to rein in expenditures of the PIGS countries (Portugal, Italy, Greece and Spain).  Will the PIGS begin a series of events that could unravel the Euro?

Several years ago when some pundits were bloviating the Euro could become a new reserve currency, I wrote this economic block has not been challenged believing that when the inevitable hard economic times arrive infighting would occur.

Is Eurozone at this point especially as national strikes and protests are scheduled in Greece protesting their government’s austere plan to bring Greece closer to Eurozone compliance?

Regarding China, nine men from the Politburo run a $5 trillion, 1.3 billion person, state controlled, economy.  Most will accept China has not adopted western accounting practices and the rule of law—which is essential for efficient production—is virtually absent.  Can or will China make the transition to western style capitalism? 

As noted many times, early 2009 the Peoples Bank of China mandated its banks to lend 25% of its GDP in six months to ensure domestic growth.  Because of this policy, China’s inflation rate is now quickly accelerating.

Does China have the ability or the political will to orderly tame inflationary pressures?  If so how will this impact the global growth theme?  I will reiterate China is an export dominated country, defined as a large majority of their output is destined for other countries.

And then there is today’s employment data.  Consensus is expecting the domestic economy to produce jobs for the second month out of three.  Will nonfarm payrolls rise by 15,000?  How will the markets respond if there is a large miss in either direction?  Did yesterday’s selloff already discount such an occurrence?

The data is released at 8:30 and a 10% headline rate is expected, a 33.2 hour work week and a 0.2% increase average hourly earnings.

Today can be interesting.

Last night the foreign markets were down. London was down 1.64%, Paris down 2.28% and Frankfurt down 1.32%.   Japan was down 2.89% and Hang Sang down 3.33%.

The Dow should open moderately lower on sovereign debt and jobs concerns .but his could change radically given the importance of the 8:30 data.  The 10-year is up 6/32 to yield 3.58%.