Thursday, September 05, 2013

Economic Data Looks Pretty Good

Markets are slightly higher in early trading.  There were several economic reports this morning, most of which came in better than expected.  One of the reactions to the positive data has been another spike higher in bond yields.

The 10-year yield is hitting new highs at 2.98%.  This is putting pressure on interest rate-sensitive stocks like REITs and utilities, but overall the market is higher despite the spike in yields.

The ADP Employment Report showed the private sector added 176,000 jobs, which was basically in-line with estimates.  Q2 productivity was revised higher to 2.3% from 0.9% while unit labor costs were revised down to 0.0% from 1.4%.  Both of those are very positive for corporate profits.

And the August ISM Services index rose to 58.6 from 56.0 in July.  Services represent nearly 70% of our GDP, so this is another good sign for the economy.

Asian markets were mixed overnight.  The Bank of Japan maintained its current monetary stance while upgrading its economic assessment.  S. Korean GDP rose 2.3%.

Europe's markets are slightly higher after the ECB meeting.  The ECB left rates unchanged at 0.5%.  The euro is lower today in response.  The Bank of England also made no changes to monetary policy.

The VIX is down slightly to 15.77 currently.  For the last year or so, a move below 15 in the VIX has coincided with a rally in equities.

Trading comment: The S&P 500 rallied to within 5 points of its overhead 50-day average this morning.  The Russell 2000 small cap is sitting right on its 50-day.  So we will need to watch if the indexes can regain their 50-days and put the bulls back in charge, or if more consolidation is in the cards.


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