A short trading day with very light volume. But it was not void of significant economic data. Jean-Claude Trichet, president of the European Central Bank this morning raised their benchmark lending rate by 25 basis points to 4.25%. Mr. Trichet has been threatening to do exactly this for some time as the European nations have been facing a significant jump in inflation with the latest figures coming in at 4% year over year inflation growth. The action taken by Trichet this morning was expected, and as such the currency markets had already anticipated this event and we saw a “sell the news” scenario play out with the US dollar. But in this case it was an inverse reaction for the US dollar was being sold leading into the announcement from the ECB and following the announcement the dollar rose. I still foresee the US dollar continuing to go lower, and setting new all time lows before the fall season arrives in the United States.

Also this morning was the monthly unemployment data. The job losses are still mounting and the weekly initial claims (the number of people filing for unemployment for the first time) rose to 404,000. What is the most amusing is that over the past 5 months analysts on CNBC would say “there can’t be a recession with initial claims still under 400,000. After the data was released this morning the first analyst interviewed on CNBC said that he was not worried about a recession because it was under 450,000. Amazing how these analysts who have been claiming that the economy was going to improve now raise the bar once their original bar is met.

Lisa and I have been, and still are, predicting a long recession.

The monthly ISM data for the service sector, which is the majority of the US economy declined as well in this mornings monthly release. Important data within the report is declining employment, declining orders, and rising prices.

(Source: Institute for Supply Management)

Crude oil finished out the day near the record highs. Gasoline prices at the pumps here in the United States have been held back somewhat leading into the holiday weekend. I am confident that the major oil companies are purposely keeping gasoline prices at their current levels, in spite of the rising crude oil prices for psychological reasons.

With the holiday weekend upon us now, if gasoline prices were allowed to rise in step with the crude oil prices it would have created a substantial ’sticker shock’ effect, and resulted in less demand for gasoline and would have impacted even further the companies who rely on the summer holiday traffic.

It would not surprise me that the oil companies were under some pressure from the White House to delay raising gasoline prices until after the holiday. I guess this thesis will be proven or debunked in the coming weeks. However, I suspect we will see gasoline prices rise sharply soon after the holiday is over.

(Crude Oil - 5 minute chart)

We did not initiate any new trades today. The market remains caught in the Twilight Zone at this time with the Dow and the S&P 500 indices at different levels with respect to their support and resistance.

The US markets are closed on Friday in observance of the US independence holiday.

Posted in Categories: Contributor, External Research, Stocks.

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