DJIA Hosting a Gain of Over 200 Points

Daily Market Commentary for August 9, 2011

Markets were resilient today with the DJIA hosting a gain of over 200 points by mid-day. (read more at Millennium-Traders.Com) http://www.millennium-traders.com/ne...ommentary.aspx


The Federal Reserve expressed much more concern about the economic outlook and said it would hold interest rates at ultra-low levels at least through mid-2013. It is the first time the Fed put a timeframe on the duration for low interest rates and the markets presented whip-saw action after the announcement. Dallas Fed President Richard Fisher, Minneapolis Fed President Narayana Kocherlakota and Philadelphia Fed President Charles Plosser objected to the specific time reference instead of the old language of holding rates low for 'an extended period of time'. “The FOMC now expects a somewhat slower pace of recovery over coming quarters than it did at the time of the previous meeting and anticipates that the unemployment rate will decline only gradually” from the July level of 9.1%, the statement said. “Moreover, downside risks to the economic outlook have increased,” the statement said. Fed also indicated that it 'discussed the range of policy tools available to promote a strong economic outlook recovery in a context of price stability' and said it’s prepared to employ the tools as appropriate. The Fed said growth was much slower than expected and the labor market had deteriorated.

Into mid day, the Swiss franc had already climbed to an all-time high versus the dollar and the euro. The dollar meanwhile, fell against the European shared currency as traders adjusted positions in the volatile market. Additionally, the greenback lost ground against the safe-haven Japanese yen.

Treasury prices moved lower this morning, sending yields up from the lowest levels since at least October. An option available to the central bank, referred to as 'Operation Twist', would be to extend the average maturity of bonds in its portfolio without actually buying more in order to cap long-term rates.

Gold continued its climb to yet higher historic highs at $1782.50 an ounce, by the noon hour. Gold has tacked on gains of more than 20% so far this year, including a gain of 5% this week. On Monday, gold and platinum futures prices reached parity as gold continued its record run as one of the few defensive assets left standing. The last time the metals had reached parity in December 2008. Platinum for October delivery gained $32.40 or 1.9%, to $1,756 an ounce with most demand for platinum coming from industrial uses. Eighty percent of the world’s platinum comes from South Africa, where ageing and ever deeper mines have faced labor strife and power outages, among other difficulties.

Per the Labor Department, productivity of U.S. businesses fell in Q2 as labor costs accelerated and revised Q1 figures were slashed to show a decline. Second-quarter productivity fell by a 0.3% annual rate on a seasonally adjusted basis and productivity in Q1 was revised lower to a 0.6% decline instead of a 1.8% increase. The economy has not experienced two straight drops in productivity since the second half of 2008. Over the past 12 months productivity has risen at a meager pace of 0.8%. The Labor Department revised productivity for the prior three years, showing a slightly higher increase in 2010 and sharply lower gains in 2009 and 2008. Unit cost of labor, which rose 2.2% on top of a 4.8% surge in Q1. Unit-labor costs reflects how much it costs a business to produce one unit of output. During the past 12 months, unit-labor costs are 1.3% higher and that number is expected to climb during the second half of 2011. During the three months through June, productivity fell because the number of hours that employees worked, rose faster than the amount of goods and services generated. The quantity of goods and services produced, known as real output, grew at an annual rate of 1.8% in Q2 and hours worked rose 2.0%. The strongest segment of the U.S. economy over the past two years, manufacturing sector, output edged up 0.6% while hours worked jumped 2.6%. The Labor Department raised productivity for 2010 to show an increase of 4.1% versus a previously reported 3.9%.


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