(Refiles to fix typo in headline)

* U.S. stocks slump as fear of more bank failures grows

* Dollar rises versus yen after strong U.S. factory data

* Oil slips below $69 a barrel on equities, strong dollar

U.S. stocks fell sharply on Tuesday as growing concerns about the U.S. banking system and over whether a recent rally in equity markets is warranted drove investors to the relative safety of bonds and the dollar.

Oil prices fell as the economic concerns outweighed surprisingly bullish U.S. data: the manufacturing sector grew in August for the first time in 19 months, while pending home sales hits a two-year high in July.

Government bond prices on both sides of the Atlantic rose as falling stocks enhanced the allure of lower-risk safe-haven debt despite the fresh evidence supporting the view of a global economic recovery.

There are “new concerns about the health of the banking system, the number of bank failures that continues to grow by the day,” said Peter Kenny, managing director at Knight Equity Markets in Jersey City, New Jersey.

A sharp drop in bank stocks in late morning trading pulled the Dow industrials <.DJI> and the broad Standard & Poor’s 500 Index <.SPX> down 2 percent on fears of balance-sheet trouble in the U.S. financial sector.

The KBW bank index <.BKX> slipped 4.6 percent, with shares of Citigroup off 7.2 percent at $4.64 among top drags.

Three more U.S. banks failed last Friday, bringing the total to 84 so far this year, as the banking industry grapples with deteriorating loans on their books. Only 25 U.S. banks failed last year, while three failed in all of 2007.

The Federal Deposit Insurance Corp reported last week that its deposit insurance fund fell 20 percent to $10.4 billion at the end of the second quarter. Worries about the FDIC’s access to capital was also weighing on the market, Kenny said.

At 1:20 p.m. (1720 GMT), the Dow Jones industrial average <.DJI> was down 185.91 points, or 1.96 percent, at 9,310.37. The Standard & Poor’s 500 Index <.SPX> was down 21.34 points, or 2.09 percent, at 999.28. The Nasdaq Composite Index <.IXIC> was down 41.11 points, or 2.05 percent, at 1,967.95.

European equities closed sharply lower after mixed economic data, led lower by banks and commodity stocks. [ID:nL1126558]

The FTSEurofirst 300 <.FTEU3> index of top European shares ended down 1.8 percent at 954.15.

Net lending to Britons in July fell at its sharpest pace since records began in 1993, even as the number of mortgages approved rose to its highest since April 2008, Bank of England figures showed.

“The market is still overall concerned about the sustainability of the recovery,” said Orlando Green, interest rate strategist at Calyon, adding that government measures such as the cash for clunkers may have boosted the result.

“There are still doubts whether the economy can stand up by itself away from these government initiatives.”

U.S. crude oil for October delivery fell $1.21 to $68.75 per barrel, while London Brent crude dropped $1.13 to $68.52.

The dollar extended gains versus the euro to hit session highs on Tuesday as sharp losses in the U.S. stock market boosted the greenback’s safe-haven appeal.

The euro fell as low as $1.4221, and was last down 0.7 percent $1.4235 .

Copper prices slipped as investors worried about the pace of economic recovery in China, but they trimmed losses after the release of bullish U.S. manufacturing data.

The benchmark 10-year U.S. Treasury note was up 12/32 in price to yield 3.36 percent.

September Bund futures settled at 122.61, down 2 ticks from Monday, but it later traded up 23 ticks at 122.84.

A rebound in Chinese stocks <.SSEC> after Monday’s sell-off helped lift Asian shares. The MSCI index of Asia Pacific stocks traded outside Japan <.MIAPJ0000PUS> rose nearly 1 percent, while Japan’s Nikkei <.N225> closed up 0.4 percent.

Sept 1 (Reuters)

Our forecast today: The government and mainstream media will soon be calling the end of the recession. Leading this feeble cause is the latest ISM manufacturing index, probably the most powerful argument for recovery we’ve seen yet:

This morning, the ISM said its gauge of manufacturing activity had risen to 52.9 in August – out of contraction for the first time since the recession began and the highest score since June 2007. Of course, things are a bit different now, but over the last 60 years, when the manufacturing sector returns to growth, the recession has already ended. That prospect is enhanced by the capacity utilization data we mentioned earlier this month — another recession-ending indicator now glowing green.
What’s more, pending home sales rose 3.2% in July, the National Association of Realtors also reported. With an index score of 97.6, that’s a 12% rise from this time last year, the highest level in two years and the sixth straight month of improving pending sales conditions.
Factor all that in with rising consumer sentiment, home price and stock indexes and we suspect now is around the time when the government will eventually declare the recession ended… which will make way for all kinds of shelved legislation and the political agendas that popularized the current administration in the first place. Then there’s that whole “double dip” dilemma… but we’ll save that for another five minutes.
Yesterday’s gloom from China helped push U.S. stocks down. The S&P 500 fell 0.8%. Today looks like it’ll be even worse. The market got a little bump from the manufacturing and housing data this morning, but as we write, traders are “selling the news” – big time. The S&P had fallen 2% by lunchtime.
“Cyclical equities, commodities and commodity currencies have already moved,” notes our macro adviser Rob Parenteau, “first to reflect the end of the Armageddon bet back in March, and then to reflect the end of the recession bet in July. We suspect investors will seize on the mounting evidence of an economic recovery to redouble their efforts to increase their positions in these asset classes.

“We will be surprised if 10-year Treasury yields do not break 4% by mid-October as this recognition spreads, and we suspect Chairman Bernanke, with the president’s nod for another term at the Fed, will be forced to start talking about normalizing the fed funds rate in Q4 (before actually doing something about it in Q1 2010) if he wishes to keep Treasury bond investors from heading for the hills. A Fed promising a near-zero fed funds rate from here to eternity will surely look far from appetizing to Treasury bond investors if a 4% real GDP growth environment unfolds.”

Wait, 4% GDP growth?

“If we were to naively use the experience of all the recessions of the post-World War II period as a guide, the nearly 4% peak-to-trough decline in real GDP to date in this recession would be the prelude to a first-year recovery growth rate close to 8.5%. This, of course, is unthinkable given the current mess. But if we got only half of that historically normal bounce — which we believe is the correct handicap, given the private sector deleveraging under way — the resulting 4%-plus real GDP growth over the next year would prove nearly twice the current 2-2.25% consensus expectation. Chairman Ben might just want to stick around for that.”

A better life through proven economic thought – that’s the Richebacher Society credo, which Rob has done a fine job carrying on. Find out how you can join their exclusive ranks here.
It’s worth noting, despite yesterday’s sell-off, the S&P ended the month up 3.4%. That spells a 51% shot since March, the best six-month run since 1938. Of course, the last thing you’d want to do now is take some profits… after the most notable winning streak in our lifetimes, the S&P will likely rise another 50%. It’ll probably go up forever.
China is celebrating a stronger manufacturing sector today, too. Its purchasing managers index (like our ISM) rose from 53.3 to 54 in August, signaling its sixth straight month of expansion and the best score in over a year. But is the China boom just a product of too much easy money? It’s starting to seem so… we’ll keep an eye on it.
Here’s another story fanning the economic recovery’s flames:The much-delayed Boeing 787 Dreamliner might finally take flight this year. Late last week, Boeing said that its long saga of delays and frustrations with the much-hyped jet are coming to an end. The first Dreamliner is now on track to leave terra firma by the end of the year, and the jet will actually be delivered to various international airways by the end of 2010.

Just how late is the Dreamliner? Japanese airliner All Nippon will get the first in 2010… since they were originally promised delivery by the start of the Beijing Olympics.

“My next buy recommendation is based on some of the historic changes happening in air transportation,” notes Chris Mayer, who chronicled the Dreamliner saga in the latest Capital & Crisis alert. “One of the key drivers of this change is what I call the Silk Roads of the sky. The aerospace industry has a $6 trillion backlog for new aircraft — which will double the global fleet over the next 20 years.

“In large measure, new and booming trade routes will link all kinds of cities and markets flung all over God’s green footstool. There are hundreds of new airports planned and thousands of new planes that will connect China to Africa to the Middle East and more.

“The thing about the new aircraft is that they are titanium intensive. Titanium is a silvery, lustrous metal that is corrosion resistant and has the highest strength-to-weight ratio of any metal. Aircraft manufacturers love titanium, especially now that the market has crushed the price of titanium, along with everything else.

“That creates some space for us to buy a quality operator now. Titanium prices are way down. Sentiment is terrible, with most analysts only lukewarm to the idea. Most of the near-term news is bad. That gives us a great price to get in on a promising long-term story. Of course, this is already in the process of changing, thanks to the Dreamliner announcement.”

So what’s the best play on this trend? Check out your latest Capital & Crisis alert.
The Canadian economy contracted more than anticipated in the second quarter, the Canadian government admitted today. GDP contracted 3.4% in the period, compared to the 3% Canadian traders anticipated. The first-quarter GDP decline was also revised downward to 6.1% — the worst annualized drop on records dating back to 1961.
“I told you so!” Byron King exclaimed to us in a one-line e-mail sent very early this morning. He’s really not the shouting/gloating type, so we quickly clicked the link he sent along and saw this, the headline of today’s New York Times business section:

“China Tightens Grip on Rare Minerals”

The Old Gray Lady is “breaking news” today on China’s rapidly increasing dominance of rare earth metals… those bottom of the periodic table elements crucial to producing just about every high-tech gadget. The NYT noted that the Chinese government is just shy of cornering the market of rare earths, and that its export quotas have been shrinking every year, with this year on track to be the smallest yet.

Readers of The 5 or Byron’s Energy & Scarcity Investor will likely yawn and turn the page… they have been reading about this since March 2008.

“There are more than a few stock pushers out there,” notes Byron, “explaining to people how to ‘profit from the squeeze in rare earths.’ But there’s really only ONE decent publicly traded company that will give you a long-term return in rare earths.”

That company is in the Energy & Scarcity Investor portfolio. Learn about it here.
Speaking of rare metals, gold’s been keeping an awfully low profile lately. Over the past 30 days, the spot price has kept to a $35 range, bouncing mostly between $940-955. The spot price is in the higher end of that paradigm today, at $952 an ounce.
The positive manufacturing numbers stopped the oil sell-off today. After a nearly $3 fall yesterday, light, sweet crude arrested its fall at $69 a barrel.
The dollar is just a bit higher. Up a few tenths of a point, to 78.2, the dollar index is still less than a point above its 2009 low.
“Inflation or deflation?” a reader asks, referring to Bill Bonner’s forecast that betting on inflation feels too easy. “I can tell you this…

“I live on a very strict budget, and I am not stretching on this statement. In the last 18-24 months, my bills have gone up considerably. I will give you some examples. Thirty-nine ounces of Maxwell House Coffee was about $5.50 a year ago, and today it comes in a smaller (34.5 oz.) package for about $8.00. WOW! A 5 lb. bag of sugar was around $1.99. Now it is $2.29. Dry cereal used to come in a larger package also, and went from $2.00 a box to a whopping $2.39. Soft drinks: A six-pack of 24 oz. bottles was $3.00 and NOW it is an unbelievable $4.29! Dog food from $8.99 to $10.99.

“My cable bill has gone up two or three times in the last two years (includes Internet and TV). My electric bill has gone up just a little.

“What went down? My homeowners insurance and natural gas bills

“The problem here is that the difference between what has increased in price and what has decreased still leaves me in the hole. In other words, after all the bills are paid, I am paying MORE this year!”

Uncle Sam responds: That’s simply not possible, madam. Consumer price inflation is down 2.1% over the last year, the largest decline since 1950. If people like you were right, it would undermine our whole methodology. There must be something wrong with your budget.
“Given the data from the Rasmussen poll you mentioned,” a reader writes of Rasmussen’s great “throw the bums out” poll, “I guess if there were an all-or-nothing choice when people voted we might finally make some progress in fixing Congress. I think the data are misleading, though, since polls have shown these types of numbers in the past, but of course, when it gets right down to it, people re-elect their local pork provider (over 90% of incumbents win in Congress).

“One poll I saw probably 10 years ago asked if Congress was corrupt, and 90% replied yes, but when asked about their own local rep, people said he was one of the few good politicians. This is the problem: All these guys are just horse-traders for their local projects, many of which we don’t need, especially with trillion-dollar deficits staring us in the face for the foreseeable future. Who knows, as the fallout from the never ending bailout programs recedes, perhaps people will start voting some of these idiots out of office — Rep. Rangel, with his forgotten income and taxes, might not be the best guy to run the Ways and Means Committee for starters. Keep up the great work.”

The 5: Thanks, it’s our pleasure.

Sourc: Manufacturing Rebound, A Contrarian Play, Rare Earths and More!

But gains were capped by a slight recovery in the U.S. dollar and by a reduction in the metal’s appeal as a haven.

Spot gold was bid at $954.40 an ounce at 1444 GMT, against $949.65 an ounce late in New York on Monday. U.S. gold futures for December delivery on the COMEX division of the New York Mercantile Exchange rose $2.70 to $956.20.

The data from the Institute of Supply Managers showed the U.S. manufacturing sector returned to growth in August after a prolonged slump, while pending home sales raced to a two-year high in July.

The news boosted U.S. stock markets, while European shares pared earlier losses.

Simon Weeks, head of precious metals at the Bank of Nova Scotia, said the news was mixed for the gold market.

“On the one hand, it is weaker as people unwind safe haven positions and put risk on again, and on the other, it is high due to increased concerns over inflationary pressure,” he said.

“There is so much going on this week in terms of data, the ECB meeting and then the G20 that it will probably be next week before people have a clear understanding of how they want to position themselves,” he added.

Analysts said ahead of the data that a positive view of the economy could help ailing jewellery and industrial sales, which have proved a drag on prices in recent months. The dollar index <.DXY> was a touch firmer after the data.

Oil prices rose more than $1 a barrel, meanwhile, after the data boosted hopes for an economic recovery, while prices of industrial metals such as copper pared losses.

Gold demand in India, the world’s largest bullion market last year, abated as traders awaited further price falls. Some buying was seen after prices slipped below $950 an ounce, but this had not persisted, traders said.

IMPORTS FALL

India’s gold imports fell to 12-14 tonnes in August from 98 tonnes a year before as high prices and weak monsoon rains dented demand, the head of the Bombay Bullion Association said.

Gold imports to Turkey, one of the top three consumers of the metal, also fell 74 percent year-on-year to 12.517 tonnes, as demand in the local market weakened.

Among other precious metals, silver firmed to $14.95 an ounce against $14.89, while platinum was at $1,234 an ounce against $1,237 and palladium was at $289 against $288.50.

Palladium rose to a year high of $291.50 an ounce in earlier trade, helped by hopes demand for the autocatalyst material may recover and strength in other precious metals.

“Palladium… has the potential to test the $300-05 area, however we remain concerned about the level of speculative longs in the market,” said The BullionDesk.com analyst James Moore.

“(These) leave the metal vulnerable to a rapid correction should those longs become spooked.”

Talks between South Africa’s mine workers’ union and Impala Platinum began on Tuesday in an attempt to end a strike over wages. Platinum’s gains have been capped by weak demand from carmakers and the perception above-ground stocks are plentiful.

Sept 1 (Reuters)

Earnings Announcements: BKS, FL, GME

Monday

Earnings Announcement: LOW

Tuesday

Economic Reports: Building Permits, Housing Starts

Expectations are for both of these reports to show a modest improvement versus the previous month. With the deteriorating housing market, I don’t think these reports will meet expectations. Until the existing inventory is whittled down, these reports should show a drop in permits and starts. Of course, I have been wrong before, but I can’t imagine any builder wanting to add more inventory to the drastic oversupply right now.

Earnings Announcements: HD, HPQ

Wednesday

Economic Reports: FOMC Minutes

The market will scour these minutes for any indication of the Fed’s future course on interest rates. With inflation a growing concern, this becomes an even more important ‘heads up’ for possible moves.

Earnings Announcements: TGT, SKS, LTD

Thursday

Economic Calendar: Philadelphia Fed

This report will give some insight into the manufacturing sector in the tri-state area. Is it possible the report will show some good news? Perhaps. The report is expected to show a reading of -18, which is a marked improvement from last month’s reading of -24.4. The report is moving in the right direction, which means less contraction in the manufacturing sector.
Source: Housing Back In The News, More Retailers Report Earnings

Fortunately for us, the report wasn’t as bad as expected. However, the job losses are still significant and still approaching historical levels.

Before I get to the historical aspects of the job losses, there’s something else to consider when looking at the job losses: where the losses are occurring.

The losses aren’t simply blue-collar workers. They are also white-collar. And the hard part for many of the individuals who have lost their jobs recently is that their jobs may never come back. So it isn’t a matter of waiting around until a new job opens up when the economy turns around. The jobs will simply never be there again. For example, last month the economy lost approximately 149,000 jobs in the manufacturing sector. Many of the plants that closed will never open again. The same goes for some of the 110,000 construction jobs that were lost last month. Even white-collar employees are facing grim prospects. Last month, professional and business services lost 122,000 jobs. Whether the company went out of business, consolidated with another one, or simply trimmed ranks, these jobs are gone for a long time, perhaps forever.

Adding to the problem, many of these workers are not easily transitioned to ‘burgeoning’ job fields. For example, an autoworker who has worked for years in plants can’t simply transition over to the healthcare sector to find employment. They need time to take classes, learn, and become proficient in their new fields. Never mind older workers who have no desire to switch jobs at such a late stage in their careers.

So how historically bad have the job losses been? It depends on the comparison.

In terms of the shear number of jobs lost, the last 16 months have been staggering. We have doubled the previous number of jobs lost in consecutive months.

However, there are simply more workers today than ever before, so for an ‘apples to apples’ comparison, let’s look at the number of jobs lost in relation to workers. To do this, I pulled up the historical data, and looked at the number of workers the month before the losses started. For example, the number of non-farm workers in November 2007 was just over 139 million. The number of jobs lost so far is 5.73 million, so the economy has shed nearly 4.13% of the workforce during the last 16 months. As you can see, we are nearly identical to the percentage of jobs lost during the 1957-1958 time period. We would only need to lose 30,500 jobs in May to eclipse the 1957-1958 period, and become the worst percentage loss ever. Unfortunately, it would take a miracle for that not to happen.

So how do the huge monthly losses we have seen stack up? Surprisingly, not too bad. To determine this number, I took the number of jobs lost and compared that to the previous months payroll figures. For example, in April, the economy lost 539,000 jobs out of the roughly 132 million jobs that were on the payrolls in March. That’s 0.55% of the jobs that were available the month before. Historically, despite the huge numbers of jobs lost recently, only January ranks in the top 10 in terms of overall percentages.

Hopefully this gives you a good frame of reference to compare the mounting job losses we are seeing right now. In terms of shear numbers and percentages we are looking at the worst or almost the worst period in history. There have been much worse monthly losses, but not extended periods.

Another record we will set very soon is the number of consecutive months of jobs lost. We currently stand at 16 months, one shy of the record. It will take divine intervention to not set the record in June.

Source: A Look At The Recent Employment Figures And How They Match Up Against Other Recessions

Last week’s report could have been worse if the numbers hadn’t been held in check by a burst of federal government hiring of temporary workers to prepare for the 2010 Census.

The report was also skewed by the way the government categorizes the unemployed.  As Money Morning previously reported, if laid-off workers who have given up looking for new jobs or have settled for part-time work are included, the numbers skyrocket.

In fact, if the latest unemployment report had included those workers, the rate would have soared to 15.8% in April, the highest on records dating back to 1994. The total number of  unemployed now stands at 13.7 million, up from 13.2 million in March.

The data released Friday wasn’t as high as the 620,000 job cuts that economists were expecting, but the payroll figures for March and February were revised to show 66,000 more job losses than previously reported.

The report showed job losses across almost all sectors of the economy, but at a slower pace than previous months.  The manufacturing sector lost 149,000 jobs in April, after cutting 167,000 the prior month. Construction industries cut 110,000 jobs after shedding 135,000 in March.

The service industry, responsible for roughly 90% of economic activity lost 269,000 jobs after eliminating 381,000 in March.

The one bright spot was government hiring, with public payrolls soaring by 72,000 after the U.S. Census Bureau began hiring 140,000 temporary workers last month to produce the population count that comes once every 10 years. It will hire more than 1.4 million people to conduct the survey over the next year.

Even though unemployment rolls are now at the highest level since September 1983, many analysts believe the numbers signaled the economy’s steep decline may be easing.

“We appear to have passed the point of the most severe job losses,” Dean Maki, co-head of U.S. economic research at Barclays Capital PLC (ADR NYSE: BCS) in New York told Bloomberg News. “It’s still a weakening labor market but it’s weakening less fast. There are a few headwinds to growth, and a recovery will” likely be “modest.”

The worst financial crisis since the 1930’s has taken a steep toll on U.S. workers and companies, and most economists expect the unemployment numbers will get worse as the housing, credit and financial sectors sort out the mess. The jobs numbers usually don’t rebound until well after an economic recovery begins.

Government “stress tests” to determine whether 19 of the largest U.S. banks had enough capital to weather further economic turmoil used an “adverse scenario” that included an average unemployment rate of 8.9% in 2009 and 10.3% next year.  But economists projected in an April survey that the jobless rate would rise to 9.5% by year-end, Bloomberg reported.

In the coming months, economists expect job losses to continue for most — if not all — of this year. But some are hopeful the cuts won’t be as deep.
“There are glimmers of hope. We are moving in the right direction in terms of layoffs. They are measurably less bad than what we’ve been through,” Mark Zandi, chief economist at Moody’s Economy.com, told the Associated Press.

The biggest impact of job losses on the economy is the threat to consumer spending, the engine that drives 70% of Gross Domestic Product (GDP).  After a first-quarter rebound, Americans could retrench again this quarter before spending shows sustained gains in the second half of 2009, according to economists surveyed by Bloomberg last month.

Joel Naroff of Holland, Pennsylvania-based Naroff Economic Advisors, thinks the numbers will be good for consumer confidence, which should help spending. In a note to investors, Naroff said the unemployment numbers are the latest in a long string of good news/bad news economic reports.

“This is a truly awful report that will likely be taken as a good report because the job losses have slowed,”he said. “As long as we continue to see the silver lining in the black clouds that overhang the data, then confidence will build.  It does look as if we are falling more slowly and we are likely to hit bottom reasonably soon, at least as far as economic growth,”

The job cuts continued this week as steelmaker Severstal International (MCX: CHMF) said it’s shutting plants in Wheeling, W.Va., and Warren, Ohio, forcing 3,100 layoffs due to the  pullback in the steel industry.

E.I. duPont Nemours & Co. (NYSE: DD), the third-biggest U.S. chemical maker, plans to eliminate an additional 2,000 positions, while Microsoft Corp. (NASDAQ: MSFT) started laying off some of the 5,000 job cuts it announced earlier this year and left the door open for more in the future.

“We will continue to closely monitor the impact of the economic downturn,” Microsoft Chief Executive Officer Steve Ballmer said in a e-mail obtained by Bloomberg News. Redmond, Washington-based Microsoft will, “if necessary, take further actions on our cost structure including additional job eliminations.”

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Source: Census Hiring and Reporting Methods Minimize April Unemployment Numbers

Tuesday

Earnings Announcements: AMAT

Wednesday

Economic Reports: Retail Sales

I’ve mentioned it before, but until Americans feel confident about the future of the economy, they won’t spend money. A slowing decline could show some hope that things are bottoming out. Tied into this report, and worth noting, is the large number of clothing retailers that are reporting this week (Macy’s, Nordstrom’s, JC Penney, Abercrombie and Fitch, Kohl’s, and American Apparel), and Wal-Mart’s earnings are announced on Thursday.

Earnings Announcements: FRE

Thursday

Economic Calendar: PPI, Core PPI

It looks as if inflation has been kept under control for at least another month. Both the PPI and Core PPI readings that are announced on Thursday are expected to show only the slightest increases since last month. We know inflation will start creeping in soon; it’s just a matter of when.

Earnings Announcements: WMT

Friday

Economic Reports: CPI, Core CPI, Industrial Production, Michigan Sentiment

As mentioned above, inflation has been held in check, and the CPI and Core CPI announcements that come out on Friday are expected to show little to no change since last month.

The Industrial Production report (and Capacity Utilization) for April are expected to show more sobering numbers. The manufacturing sector is going nowhere fast. Until these readings turn positive, any economic rally will be short lived.

Finally, the preliminary Michigan Sentiment report for May is released on Friday. Expectations are for a very small drop since last month. With the market moving up over the last few months, and the Fed stating that they see and end to the economic downturn by the end of the year, I think this report will surprise to the positive side. Nothing major, just a slight improvement.

Source:  A Big Week for Retailers, Will Inflation Be Held In Check?

The first set of announcements to pay attention to are the housing figures for January, which come out simultaneously on Wednesday morning. Both the Building Permits and Housing Starts are expected to post declines from December.

Last month, both reports missed estimates by about 50k units. I’ve got to think that this month will come in lower than estimates by at least that amount. It seems no matter how low the estimates, the housing market will still disappoint.

On Thursday, we have the PPI and Core PPI figures for January.  For the first time since last July, expectations are for an increase in the PPI. This could be due to a number of factors, such as an increase in energy prices, but the concerning one would be inflation. Could the Fed monetary policy finally be catching up with us? Time will tell.

The same holds true for the CPI estimate that is announced on Friday along with the Core CPI reading. For the first time since last July, the CPI reading is expected to increase. Since this reading includes energy costs, it could be simply due to the slight increase in gas prices recently. That would be the preferred reason, anything but dreaded inflation.

The final report of interest this week is the Philadelphia Fed announcement on Thursday. Unfortunately, the report is expected to show further decline in the manufacturing sector in the Tri-State area. In order for the economy to turn around, every manufacturing report, including this one, needs to start showing an increase in production.

Source: Are We Starting To See Inflation Creep Up?

The reports included separate data on factory orders and pending home sales for November, as well as the Institute of Supply Management report on the non-manufacturing index for December – giving investors fresh insight into the depth of the current recession.

Despite the overall negative tone of the reports, some analysts maintain the worst may be over.

“While the economic headlines remain grim, stocks are holding higher in quiet trading because a lot of the bad news was already discounted when the stock market crashed in 2008,” Frederic Ruffy, options strategist, at WhatsTrading.com told MarketWatch.

Factory Orders Fall Biggest Since 1992

Data from the manufacturing sector confirmed that the recession accelerated in November. Orders placed with U.S. factories fell twice as much as forecast, signaling businesses are cutting back on investments, Bloomberg reported.

Factory demand fell 4.6% after a revised 6% decrease in October that was more than previously reported, the Commerce Department said yesterday (Tuesday) in Washington. The back-to-back decline was the biggest since records began in 1992.

“Consumer-durable spending is way down as credit is more difficult to get,” Douglas Smith, chief economist for the Americas at Standard Chartered Bank in New York, said in an interview with Bloomberg Television. “With weakness overseas, you’re also seeing fewer orders for U.S. manufactured goods.”

Tight Credit Hammers Home Resales

A key housing indicator added to the economic malaise as pending home re-sales fell 4% to 82.3 in November, the lowest level since the index began in 2001. The index was down from a revised 85.7 in October, the National Association of Realtors said.

The latest drop supports most analysts’ views that further softening could be in store for the U.S. housing market as credit markets continue to seize up and unemployment skyrockets.

“The housing stress just doesn’t end,” Ethan Harris, co-head of U.S. economic research at Barclays Capital Inc. in New York, told Bloomberg. Economists had expected November pending sales to fall 1% after an originally reported drop of 0.7% in the prior month.

Meanwhile homebuilders are hanging on by a thread. Lennar Corp. (LEN), a U.S. home building company with operations in 14 states, reported its seventh straight quarterly loss on Dec. 18.

“We’re in the midst of a downward spiral and the momentum is building,” Chief Executive Officer Stuart Miller said on a conference call with analysts.

Service Sector Gives Hope

Meanwhile, the service sector provided the market with a glimmer of hope as the non-manufacturing index contracted in December at a slower rate than had been feared.

The ISM service sector index rose to 40.6% in December from a record low of 37.3% in November. Economists polled by MarketWatch had projected a figure of 37% for December. Still, a reading below 50% indicates that more firms are contracting than expanding.

In December, only one industry reported growth: Retail trade. Among the 17 industries reporting contractions: Wholesale trade; professional, scientific and technical services; and transportation and warehousing.

But surveyed managers said they were still worried about a falloff in their business, budget cuts and jobs. As global demand slows and access to credit continues to tighten, companies are likely to further curtail spending.

The U.S. economy contracted at a 0.5% annual rate in the third quarter, the Commerce Department said Dec. 23. The economy probably shrank at a 4.3% annual rate in the last three months of 2008, the biggest contraction since 1982, according to the median estimate of economists surveyed last month by Bloomberg.

The barrage of negative data may put pressure on Congress to move quickly on President-elect Barack Obama’s economic stimulus plan. Obama has proposed an economic stimulus package costing as much as $850 billion, with emphasis on infrastructure projects and tax cuts. The incoming administration hopes the package will provide a boost to consumer spending and stabilize the economy.

Source: Stock Market Gyrates as Reports Show Economy Deep in Recession

Leaders from around the world gathered in an attempt to solve the crisis facing the global economy. This meeting was being billed as “Bretton-Woods II” and the markets were counting on some action. But the meeting was largely a non-event, as leaders did little more than point fingers and try to pass the blame for the financial crisis. President George W. Bush and his counterparts from the Group of 20 blamed the looming global recession on imprudent investors who sought higher yields without an adequate appreciation of the risks. They also mentioned the regulators who failed to address the dangers building in the market were at fault, but no mention at all of the Wall Street banks and investment houses who concocted complicated investment vehicles, bought them a AAA rating, and sold them to unsuspecting investors. Granted, these investors who purchased them without proper due diligence are partially to blame, but some fingers should also be pointing in Wall Street’s direction.

But pointing fingers won’t solve our problems, so what did the G-20 come up with to rescue the markets? Nothing more than a statement calling for higher capital standards and stronger risk management at banks, hedge funds, and credit rating firms. I agree that more regulation is needed, but the markets were looking for a coordinated response to the current crisis, and this announcement will undoubtedly disappoint them.

I received a phone call from a Reuter’s reporter on Friday asking my thoughts on the probably outcome of the G20 meeting. I told her I had little expectations for any market moving announcements, and that the most likely result would be the agreement to have another meeting later next year. That is exactly what occurred, with the leaders scheduling another meeting for the first quarter of 2009.

The dollar fell vs. most of the major currencies, as with the British Pound turning in the best performance, increasing 1.28% vs. the US$. Chuck had a reader send him a very important newsflash from the Telegraph UK paper. The Financial Services Authority (FSA) has completed a liquidity/stability stress test on the capital ratios of UK building societies and found that they’re much more stable than the Banks. This undoubtedly helped the pound rally, but this move up could prove short lived, as the underlying fundamentals for the pound are weak, and getting weaker.

The Brazilian Real was the biggest loser vs. the US$ over the weekend, as weak economic data caused investors to move out of the emerging markets. I continue to believe that the commodity based currencies hold some of the best values in today’s markets. The stimulus package announced by China, along with government infrastructure which will likely be announced here in the US, should increase demand on raw materials. More and more governments will try to ’spend their way’ out of the global slowdown, investing into big infrastructure construction projects. These projects should bring commodity prices back up, which would be supportive of the Brazilian real and the Australian dollar two of the major exporters of raw materials.

Today we will get the Empire Manufacturing data, which will likely show more rot on the vine for manufacturing in the NY area. The number is expected to show a record drop for November. We will also see the Industrial Production and Capacity Utilization numbers for October. The Industrial Production number is actually expected to show a slight pick up after falling almost 3% in September.

The rest of the week will bring even more data on the US economy, with PPI and TIC flows scheduled for tomorrow; CPI, US Housing starts, and the minutes of FOMC’s October meeting on Wednesday. And to finish the week, the jobs numbers will be printed on Thursday along with the Leading Indicators. None of this data should be dollar positive, as the fundamentals of the US economy continue to deteriorate. But as readers know, bad economic numbers have had a dollar positive effect, as investors flock to the ’safe haven’ of US treasuries. So the dollar could actually see more strength as the bad numbers roll in.

This is what happened with the Japanese Yen over the weekend, as Japan announced GDP fell .4% during the third quarter. Japan’s economy, the world’s second largest, entered its fires recession since 2001 last quarter and the government economists say conditions may get even worse. The bad news was met with currency investors buying the Japanese yen. Yes, investors moved back into yen as they reversed carry trades, selling high yielding currencies to pay down loans in Japan. So poor economic data in the US and Japan are driving investors back into these currencies.

Crazy days!

Currencies today 11/17/08: A$ .6485, kiwi .5564, C$ .8119, euro 1.2646, sterling 1.4922, Swiss .8352, ISK (No Quote), rand 10.13, krone 6.9728, SEK 7.923, forint 212.13, zloty 2.9817, koruna 20.07, yen 96.51, baht 34.99, sing 1.5231, HKD 7.7501, INR 49.3375, China 6.8270, pesos 13.062, BRL 2.305, dollar index 86.97, Oil $55.54, Silver $9.50, and Gold… $742.84

Source: Nothing Comes Out of the G20 Meeting