Daily Pfennig: Focus Still Remains on the US Economy…

caseyresearch.com / By Chuck Butler / March 6, 2013 2:20pm GMT

Focus Still Remains on the US Economy…

Good day… We got an unexpected snow storm here in St. Louis yesterday; not much accumulation but enough to make the commute home a bit tricky.  I hear the folks just north of us are getting blanketed with up to 10 inches up in Chicago.  The dollar took an unexpected turn upwards after a report showed the service industries expanded at the fastest pace in a year.  And the Dow reached an all time high yesterday, fueled by the easy money of several rounds of quantitative easing.

Boy was I ever wrong when I closed out yesterday’s pfennig with the statement that there wasn’t any important releases scheduled here in the US.  No excuses, I just totally missed what apparently turned out to be a very important piece of data which was scheduled to be released first thing yesterday morning.  The Institute for Supply Management’s non-manufacturing index was released yesterday morning, and unlike similar gauges in China and Europe, the ISM gauge for the US unexpectedly increased.  The index came in at 56 in February, compared to a 55.2 reading the month before.  The forecast called for the index to fall to a reading of 55, so the increase caught most investors off guard (especially those of us who weren’t even aware the data was going to be released!).  The US data contrast dramatically with the slower growth of the service industry in the world’s second biggest economy – China.  As I reported in Monday’s Pfennig, the Chinese service index expanded in February at the slowest pace in 6 months, and caused some investors to start to worry about the resilience of the global recovery.

The ISM number usually isn’t a ‘market mover’, but the US equity markets had been pushing higher so the surprisingly positive number was just the catalyst needed for US equities to set new all time highs.  While the ISM data may have supplied the final push, the equity rally which has been occurring since the turn of the year has been built on the easy money of Bernanke’s stimulus programs.  This is why there is so much concern on if and when the Fed will stop feeding the markets.

I won’t make the same mistake today, and will let you know there are three different reports scheduled to be released today which could impact the markets.  First we will get the MBA Mortgage Applications which are expected to show a major improvement over last month’s negative reading.  More importantly we will see the ADP Employment Change report which is expected to show companies added positions in February.  This report is typically seen as a ‘preview’ of the Labor Department’s job report which is scheduled to be released on March 8.  And later this morning we will get Factory Orders for the month of January when they are expected to have fallen 2.2%.  The currency and equity markets seem to be focusing on the ADP report (no surprise since this is the one which is predicted to be the most optimistic).  And finally the US Fed’s Beige Book will be released this afternoon and will probably indicate the US economic recovery is continuing, but is still somewhat fragile.  I don’t believe there will be anything in the beige book which will indicate the US will put an end to the stimulus efforts sooner rather than later.

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