Companies posting solid results before the bell included AON Corp and industrial conglomerate Tyco International Ltd .

Goldman Sachs raised its recommendation on GE to “buy,” saying comments made by the chairman of a key congressional committee suggests a decreased chance of a break up of the finance arm of the diversified industrial manufacturer.

U.S. House Financial Services Committee Chairman Barney Frank in an interview with Bloomberg late on Wednesday suggested there was broadening support for regulatory reform that would not mandate the separation of GE Capital, Goldman analysts said.

GE shares rose 5.5 percent to $12.94 before the bell.

“A lot of this is a follow up of the resilience we’ve seen in the market over a couple of weeks. The clear sentiment is to be buying on any dips,” said Matt McCall, president of Penn Financial Group in Ridgewood, New Jersey.

“We get buying into the close on a consistent basis. The trend right now is higher. We have earnings improving, and that’s giving people the reason buy.”

S&P 500 futures rose 6.6 points and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures climbed 53 points, and Nasdaq 100 futures were 8.5 points higher.

Investor sentiment was also buoyed by signs that the global recession is abating following upbeat economic reports from Europe.

European stocks were up more than 1 percent after data showed July euro zone economic sentiment rose to its highest level in eight months, while German unemployment unexpectedly fell for the first time in July.

International Paper Co posted a 40 percent drop in second-quarter profit but said the worst of the economic downturn had passed, and it was seeing improvements in some markets. . IP shares rose 3.3 percent to $19 in premarket trading.

Motorola Inc shares rose 3.5 percent to $6.80 before the bell after the mobile phone maker swung to a quarterly profit.

Exxon Mobil Corp shares fell 1 percent after it reported second-quarter earnings.

The U.S. economic calendar includes the weekly report on initial jobless claims at 8:30 a.m. (1230 GMT). A Reuters survey of economists forecast claims to have risen to 570,000 from 554,000 the previous week.

Also on the calendar is a record $28 billion 7-year note auction from the U.S. Treasury, which could make investors cautious on the heels of poor demand for two government auctions this week.

NEW YORK, July 30 (Reuters)

Good day…Chuck has a bevy of doctor’s appointments today, so he decided to let me take over the Pfennig. Unfortunately it will go out a little later than usual, as I always struggle to get all of my thoughts together so early in the morning. Its not that I come in late (I was here two hours before everyone else) but it just takes me much longer than Chuck to get it all on paper. But enough of the excuses, I’ve got to get writing.

Weekly jobless claims released in the US yesterday morning fell below 600k for the first time since January but the continuing claims continue to rise, hitting another record. The slight improvement in the weekly numbers was distorted by the automotive sector. Car companies typically shut down plants in early July in order to change over to the new model year. Bankruptcy forced many of these plants to shut down much earlier than normal, and some temporarily started up production again during the past few weeks.

Chuck would have a field day with the jobless claims, as the government economists were hard at work ‘massaging’ the numbers to give everyone a more ‘clear’ picture of the data (why can’t they just report the actual number of people filing for unemployment?). As Chuck has pointed out, the Labor Department adjusts the figures using seasonal and demographic trends, creating ‘ghost jobs’. Since automobile plants typically shut down in the first weeks of July, the labor department expected a large increase in claims during this time. In order to offset these ’seasonal factors’, the brain trust at the Labor Department added back a number of jobs in order to balance out the expected temporary layoffs in the auto sector. You would think the Labor Department would realize that most of these automobile workers were already idled, and therefore keep the adjustments to a minimum. But that would be too logical, so they just went ahead and ’seasonally adjusted’ the claims as if this was a typical July for the auto sector.

The continuing claims illustrate a much clearer picture of the US job market, with unemployment spiking up to 9.5% in the US. The news from the retail sector was also gloomy, as the ICSC Chain Store Sales fell another 5.1% YOY during the month of June. Inventories also continued to shrink for a ninth month in a row in May to just over $400 billion. This is the lowest level since August of 2007, and raises some longer term inflationary concerns. Some of you are probably questioning this last statement, so I will explain.

Lower retail sales have forced stores to keep inventories down. I was in a local Walmart store the other day and noticed the shelves were emptier than what I have seen in the past, items weren’t stacked 5 deep and didn’t reach toward the ceiling. US consumers have been buying less and saving more, a very good thing! But stores have reacted by dropping the amount of inventory they are carrying (again a smart thing for retailers). Against this backdrop, the US government continues to flood the economy with cash, trying to get consumers to start spending again to jumpstart the economy. For now, the cash has been hoarded by banks and used by consumers to pay down some of their massive debt. Eventually the ‘all clear’ horn will sound, and consumers will start looking to make purchases again, but will find empty shelves. Inflation will follow, as too much cash will be chasing too few goods.

But our government has a much shorter term view, and continues to pump money into our economy with no real regard for future inflationary concerns. And some very smart economists seem to agree with the administration. Both Nouriel Roubini and Robert Shiller, respected economists, are calling for additional stimulus. In a radio interview yesterday, Roubini predicted the US recession will last another six months and be followed by a ’shallow’ recovery. On the same radio show, Shiller said the economic crisis would continue despite the $12.8 trillion pledged by the US government and Federal Reserve.

The BOE shook up the markets with a surprise announcement not to increase its quantitative easing program. The Bank’s Monetary Policy Committee put the program designed to pump extra cash into the markets by purchasing its own debt on hold after announcing it would also keep interest rates steady at .5%. The move was a major surprise to the markets, and sent the price of gilts (the UK’s treasury bonds) falling and the price of the Pound Sterling higher. The BOE was the first of the western central banks to begin the controversial program in which it monetizes its debt; hitting the overdrive button on the printing presses by monetizing its debt. We’ve never been a fan of the Quantitative Easing programs, as they are short sighted with total disregard for the future inflationary pressures the exert on the economy. But several other central banks, desperate for a way to get cash into their economies have followed the BOE’s lead.

The move by the BOE was even more surprising given the fact that the Chancellor has authorized another 25 billion pounds to be added to the program. Perhaps the Bank’s Monetary Policy Committee is finally starting to realize all of the QE which it has done hasn’t really had the desired impact. Much of the extra cash being created by the program is simply being hoarded by banks and is not making its way out into the economy via loans. Sound familiar? We have a similar situation occurring here in the US, with banks sitting on a majority of the stimulus monies which they have received. They have used the funds to shore up their balance sheets, a good thing long term, but not what the central banks intended with the introduction of the QE programs.

But enough of the economic talk, I need to let you know what happened to the currency markets overnight!! In spite of the Labor departments attempts to ‘adjust’ the weekly jobless claims, the economic data released here in the US yesterday was generally poor. This raised further concerns regarding the global economic recovery, and forced investors back into the US treasury market. As typical during these periods of uncertainty, the Japanese yen was the best performing currency. This is due to a general deleveraging as investors purchase yen to pay down debts used to invest into higher yielding assets.

We have seen this pattern repeat several times over the past year. As investors start to see some signs of recovery in the global economy, they invest into the higher yielding currencies, and borrow funds at lower rates available in Japan. But as soon as they begin to question the recovery, they move back out of the higher yielders and pay back these loans in the Japanese yen. Morgan Stanley believes the recent move by the yen is just the beginning of another big move, predicting a move to 85 yen/dollar. The foreign exchange strategists at Morgan Stanley predict the yen will continue to rally through the end of the year as doubts about the global recovery intensify. But their longer term predictions are less enthusiastic, as they feel the yen will weaken throughout 2010.

The commodity currencies took a hit over the past few days as the price of oil and metals continued to fall. Oil fell below $60 per barrel for the first time in a couple of months. Concerns over the global recovery, along with some slight calming of tensions in the gulf states have caused the price to drop. One commodity currency which has been able to hold steady during the recent selloff is the Brazilian real. A report that car sales in China surged bolstered the outlook for the commodity rich country. China’s passenger-vehicle sales rose 48% in June, pushing China past the US as the world’s largest auto market.

Increased automobile demand in China is another sign of their slow move away from an export based emerging market economy to that of a more balanced one. China’s exports tumbled for an eighth month in June, but internal demand helped by the government’s stimulus package is offsetting some of the impact of these falling exports. Imports also fell, but the size of the decrease was the least in eight months. This is good sign for the future of China, as imports are typically a leading indicator for exports in China.

China’s foreign exchange reserves likely topped $2 trillion for the first time, climbing another $67.8 billion in the second quarter. The central bank is predicted to release the number sometime today. The increase in reserves certainly cause concern in the currency markets, as officials in China continue to call for the diversification of these reserves. According to a story in the Financial Times, China launched its highest profile criticism of the dominant role of the US dollar as a global reserve currency during the last day of the G8 meetings in Italy. “We should have a better system for reserve currency issuance and regulation, so that we can maintain relative stability of major reserve currencies exchange rates and promote a diversified and rational international reserve currency system,” Chinese state Councilor Dai Bingguo was reported to say. Western leaders tried to play down the remarks, with Gordon Brown stating that he did not remember Mr. Dai making the remarks.

Separately, Joseph Yam, chief executive of the Hong Kong Monetary Authority, said Hong Kong might consider diversifying more of its $200 billion reserves away from the US dollar. I would expect China to keep the heat on the Obama administration in order to try and get them to reign in some of their ‘quantitative easing’ programs. The Chinese officials continue to be concerned about the future inflationary consequences of these programs. But at the same time, they have to be very careful about the diversification out of the dollar, as they still hold trillions of dollars and don’t want to cause a sudden fall in their value. The big boss, Frank Trotter, constantly reminds us that China has a much longer term thought process, and has an extreme amount of patience. I would expect them to continue to slowly diversify their holdings, adding to the long slow decline of the US$.

With that I will move on to the currency roundup. Sorry to go so long this morning, but I felt like there was a lot of data to get through.

Currencies today 7/10/09: A$ .7760, kiwi .6263, C$ .8596, euro 1.3902, sterling 1.6198, Swiss .9172, rand 8.196, krone 6.5369, SEK 7.9021, forint 199.10, zloty 3.1440, koruna 18.708, yen 92.76, sing 1.4623, HKD 7.75, INR 48.97, China 6.8327, pesos 13.6408, BRL 2.009, dollar index 80.489, Oil $59.66, 10-year 3.337%, Silver $12.64, and Gold… $909.39

That’s it for today… Everyone is limping into the office this morning, as we played a double-header in our kickball league last night. We ended up splitting the two games, but as my wife continues to tell me, kickball is a game for kids, not middle aged currency traders!! One of our team had to go to the hospital last night, as he injured his shoulder diving for a catch in the outfield; I hope Joe B’s shoulder turns out to be ok!! St. Louis is getting ready for the All Star weekend, and I saw one of the blimps floating around last night. My son, Brendan and I are heading downtown to compete in the All Star Charity 5k run which begins at Busch Stadium. It will be fun to be downtown and around all of the All Star hoopla, even though we don’t have a ticket to any of the events. Hope everyone has a fantastic Friday and a Wonderful Weekend!!

Source: Frightened Investors Move Back into US Treasuries

Standouts in the broad run-up included shares of Best Buy , up 11.3 percent to $37.24 after the electronics chain’s quarterly profit topped estimates and its yearly outlook boosted optimism about consumer spending.

Retailer Wal-Mart Stores Inc was among the top boosts on the Dow, rising more than 2 percent to $52.88, while the S&P retail index gained nearly 5 percent.

Shares of natural resources companies rose along with higher commodity prices. Shares of steel maker Nucor rose 5.6 percent to $41.25 and U.S. Steel Corp was up 5.9 percent to $24.86.

“Obviously the tide is shifting. We’ve gone from every piece of news being incrementally bad to not as bad as expectations,” said Stephanie Giroux, Chief Investment Strategist at TD Ameritrade in Jersey City, New Jersey.

“The fact that collectively we are starting to see things less negative is very significant.”

The Dow Jones industrial average added 158.42 points, or 2.04 percent, to 7,908.23. The Standard & Poor’s 500 Index rose 16.78 points, or 2.06 percent, to 830.66. The Nasdaq Composite Index jumped 47.47 points, or 3.10 percent, to 1,576.42.

At the current pace, the S&P 500 could have its biggest monthly gain in 22 years, as stocks extend a three-week rally off 12-year lows.

Investors were relieved to see fair demand for $24 billion of U.S. debt offered after a poor auction a day earlier raised fears the government would have trouble funding its plans to help the economy recover.

Shares of banks pared losses after the auction, with JPMorgan down 1 percent to $28.27, having fallen as low as $27.65, while the KBW bank index fell 0.4 percent.

Government data showed the U.S. economy contracted slightly less than expected in the fourth quarter, although corporate profits in the same quarter plunged by the biggest margin since 1994. The number of workers collecting state unemployment benefits rose to a record in the latest week.

Recent better-than-expected housing and retail sales data has given rise to hopes that the recession-stricken economy was starting to show signs of life.

March 26 (Reuters)

Good day…The dollar rallied a bit yesterday on some very poor economic data which illustrated just how bad things are getting here in the US. As Chuck has repeatedly told everyone, in the current trade pattern the dollar rallies whenever we get negative data for the US economy. Investors get spooked by this negative data, and run scared into the ’safety’ of US treasuries.

Ty sent me a quote from respected newsletter owner/author Bill Bonner yesterday: “Misguided risk aversion, anyone? A few months ago, investors stretched for yields. Now, it’s safety they reach for…and grab U.S. Treasury debt with both hands. Investors now seem to have an unqualified trust in the full faith and credit of the world’s largest debtor. Yields on 91-day T-bills have fallen to 0.11% – scarcely a tenth of one percent!”

And when you adjust these yields for US inflation, the real yields on US treasuries are negative (even the 10 yr treasury real yield is -.43%!!). These investors won’t be parked in US Treasuries for long, but while fear continues to drive the markets, the US dollar will remain strong.

The data which sent shivers down investors spines yesterday was a one two punch of weekly jobless claims and leading indicators. The number of Americans filing for unemployment benefits approached a 26-year high of 542,000 last week. The Unemployment rate will likely increase another 100 bps by this time next year, and stay at these elevated levels for an extended period of time.

The second blow came shortly after the jobs data was released, as the index of leading US economic indicators fell in October for the third time in four months. The Conference Board’s gauge dropped .8%, more than forecast, after rising .1% in September. This index points to the direction of the economy over the next three to six months. Consumers and companies are cutting back as job losses mount and housing and manufacturing sink deeper into a slump. These two pieces of data indicate just how quickly the US economy is falling into recession.

Investors fled stocks and moved back into dollars throughout the trading day yesterday, rallying the dollar index back to the highest level since April 2006. We moved above 88 on the dollar index a week ago, but it was unable to maintain the higher level.

The same thing occurred last night, as equity markets in Asia rebounded, bringing the dollar index back below the 88 handle. Apparently there was speculation that a sale of Citigroup Inc. will reduce risk in the financial system, slightly increasing the confidence of investors. This is how perverse these markets have become; the possible sale of one of the largest financial firms in the US actually rallies the markets.

The European Union announced that is crafting a coordinated economic stimulus package to spur its 27 nation economy. European Commission President Jose Barroso told reporters in Brussels today that the commission will announce a fiscal stimulus plan next week. The plan will be based on member states taking measures suited to their own economic situation. I like the approach the EU is taking to the crisis, as they will design the stimulus to try and meet the differing needs by each country. According to the EC president, “Everyone is suffering from the crisis and everyone needs treatment, but not everyone needs the same pill.”

According to Barclay’s Capital, the euro will strengthen 16 percent against the dollar in the next 12 months as Chinese demand drives up prices for oil, reducing the US currencies attractiveness. Two-thirds of the euro’s 22 percent slide since the July peak of $1.6038 can be accounted for by plunging oil prices, Barclays said. China is the second largest oil consumer after the US, and “Contrary to current received wisdom, oil prices are much more important for the euro-dollar cross than either the stock market or interest rate differential right now,” wrote London-based David Woo, global head of currency strategy at Barclay’s. Declining oil prices have helped the greenback by narrowing the US current account deficit, reducing the US’s need for overseas funding, Woo said. He forecasts the euro will trade in a range around $1.24 in the next three months, but then rally to $1.45 over the next year as accelerating growth in China helps oil prices retrace their recent fall.

I agree with Barclay’s analysis of global commodity prices. China and the rest of Asia will continue to be the world’s growth engine, and demand for commodities will increase. The stimulus packages which are being pushed will put additional upward pressure on raw material prices. The commodity rally will not only help the Euro, but will help push up prices of the Norwegian krone, Australian dollar, and Brazilian real.

Switzerland’s central bank surprised the market yesterday, dropping its benchmark interest rate by 100 basis points. The Swiss National Bank reduced its target for the three month Libor to 1 percent and promised a ‘generous and flexible’ supply of Swiss Francs. It’s the third unscheduled move by the SNB since the beginning of October. I would expect the SNB to keep rates on hold at their meeting next month given the extent of yesterday’s move. The Swiss Franc fell as the dollar strengthened yesterday, but rallied overnight and is now trading close to where it was prior to the SNB move.

In other interest rate news, the Bank of Japan kept its benchmark rate at .3 percent today and said it will consider pumping more money into the financial system to prop up an economy that fell into recession last quarter. Japanese banks are in a much better financial position that banks in the Eurozone or the US, and the Japanese consumers are flush with cash. Japan went through a long deflationary period, and consumers there are less leveraged than here in the US. The stronger position of Japanese banks, and the more solid consumer base will enable the Japanese economy to weather the global slowdown much better than most other economies. The yen will retain its attractiveness as the world faces a long, long recession.

Technical analysts predict the yen may rally to 92.50 in the short term, and could move above the 13 year high of 90.93 which it hit on October 24. According to the analysts, the so-called support level is near the bottom line of a trend channel that tracks the dollar’s decline from a two week high of 100.55 yen on Nov. 4. The US currency is poised to extend a 3.5% loss this month as it failed to rise above the 20 day moving average and the down trend is still very clear.

The Australian dollar approached a five year low against the dollar in late US trading and the New Zealand dollar traded near a six year low as investors moved out of the carry trades after the negative US data yesterday. But the Australian dollar bounced back overnight as the Reserve Bank of Australia announced it had bought a record 3.15 billion Australian dollars in October. The RBA continued to purchase its own currency this morning, “providing liquidity as on previous occasions,” said a spokesman for the Sydney-based central bank. The Australian dollar has posted a record monthly drop in October and the RBA has been purchasing the AUD$ in an attempt to slow the drop. Commodity prices continue to fall, dragging down the exchange rates of commodity exporting countries. Falling interest rates have also put pressure on the higher yielding currencies of NZD and AUD.

Iceland finally got the long promised bailout from the IMF and four Nordic countries yesterday. The IMF and four Nordic countries gave Iceland a $4.6 billion bailout. The Icelandic government will also borrow about $6.3 billion from the UK, Germany, and the Netherlands to cover foreign deposit guarantees at failed lenders. While the rescue was desperately needed, it will heap almost $11 billion of debt on the shoulders of the islands population of just 320,000. “This is an extraordinary scale of problem related to the size of the economy,” IMF Mission Chief to Iceland Poul Tomsen told reporters. “Iceland is in an unprecedented situation.” GDP in Iceland is predicted to shrink about 10 percent next year, the IMF says. The island had the fifth-highest per capita income in the world in 2007, but the collapse of their financial system has caused the Icelandic krona to lose two thirds of its value this year. The rescue may start to add some liquidity back into the banking system, but the massive amount of debt will likely keep the Icelandic economy from rebounding for a number of years.

Currencies today 11/21/08: A$ .6212, kiwi .5272, C$ .7817, euro 1.258, sterling 1.4982, Swiss .8194, ISK (No Quote), rand 10.46, krone 7.0831, SEK 7.2031, forint 211.78, zloty 3.046, koruna 20.405, yen 94.87, baht 35.22, sing 1.5304, HKD 7.7513, INR 50.02, China 6.8311, pesos 13.8031, BRL 2.457, dollar index 87.56, Oil $50.38, Silver $9.17, and Gold… $756.88

Source: Misguided Risk Aversion