US President Barack Obama's State of the Union address called for the raising of the minimum wage from wage to $9.00 from $7.25. He also proposed spending about $50 billion on "urgent" infrastructure projects such as water and sewage treatment. He further urged Congress to pass immigration legislation and stricter gun-control laws to prevent the purchase of weapons of war and massive ammunitions magazines. He stressed the importance of background checks for the purchase of weapons with a clause to tighten-up on laws keeping weapons from criminals. He focused on manufacturing to be expanded on by setting up 15 manufacturing institutes that would help business, universities and community colleges to coordinate training with job prospects. He went on to elaborate on the 500,000 new manufacturing jobs added over the last two years although the 1.8 million lost since the onset of the debt crisis back in 2007 were not mentioned. All in all, the speech was perhaps viewed as window dressing to a slack recovery; citing new jobs added, car sales surging while oil imports are down and the housing market making a comeback. On May 18th, the suspended $16.4 trillion debt ceiling comes due. The White House warned that the "sequestration" spending cuts that come due on March 1st could be very damaging to the US citizens. It threatens the economy and can mean that thousands of government workers may become temporarily laid off. House Speaker John Boehner upset President Obama's sequester in challenging the automatic spending cuts with others discounting tax increases. The Federal Government's budget deficit for October through December was $292.37 billion and projections for the fiscal year ending on September 30th are for $990.56 billion. The Treasury projects borrowing from January through March at $331 billion. The US Senate voted on January 31st to suspend the US debt limit for three months to avert a potential default. The Fed now has the $16.4 trillion borrowing limit lifted until May 19th. The debt limit has been raised since 1917 where it was first raised to help finance WWI. The Federal Open Market Committee minutes suggested that the economic activity growth paused in the last few months. The committee intends to increase employment and price stability. The Fed is to maintain the federal funds rate of 0 to .25 %. The accommodative stance should be maintained until US Unemployment was cut to 6.5 % or that inflation reached 2.5 %. Federal Chairman Ben Bernanke had elected to continue the $40 billion in mortgage bond and $45 bill Treasury purchases per month to continue without stating an end date. The Pentagon may lay-off about 46,000 temporary workers giving notices to some 800,000 workers that they must take a one-day mandatory and unpaid day-off per week starting in April. The US Defense Department must adhere to spending cuts unless another solution is found. The Feds loose monetary policy has increased the money supply. The banks have additional reserves parked at the Fed adding up to about $1.5 trillion. The US Senate approved legislation pausing the debt ceiling for three months. There are many issues to address and the delay may offer time and solutions. The US debt situation in the US has grown since last year's deficit was $14.8 trillion and this year is $16.1 trillion. Public debt amounted to a $11.3 trillion deficit in 2012 from the previous $10.2. The fiscal year is from October 1 to September 30th. Fitch's credit rating agency has revised growth targets for the US upward. US Congress authorized a tax cut bill on January 1 making the Bush reductions permanent for the majority of the population! US individuals earning $400,000 per year or households earning $450,000 per year or more may see an increased tax rate to 39.6 % from the previous 35 %. Taxes on capital gains and dividends may see an increase to 23.8 % from the previous 15 %. The deal effects the upper 2 % income brackets and yet there is still much to be done. Spending cuts and the debt limit remain on the table and in the eyes of the credit rating agencies, there is no meaningful improvement in the government's debt ratio. Recalling the Standard & Poor's credit rating downgrade of the US in August of 2011, the effects on the stock indices can be quite severe! The US economy remains fragile and can still dip into a recession this year. The credit ratings agencies are looking for a long-term plan of deficit reduction. Moody's credit rating agency had warned that the agreement in place does not address the long-term concerns for debt reduction. The US needs to now focus on raising the debt ceiling. The debt ceiling has been raised 79 times since 1960. Spending cuts by the US government may turn into a hard pill to swallow for the current administration.
US Retail Sales was up 0.1 % while the previous reading was + 0.5 %. Retail sales less autos was up 0.2 % while the previous reading was +0.3 %. Retail Sales less autos and gasoline was up 0.2 % while the previous reading was +0.6%. EIA petroleum Status Report weekly inventories of crude oil was +0.6 million barrels. The gasoline inventories were -0.8 million barrels. The distillate inventories was at -3.7 million barrels. Business Inventories was at 0.1 % while the previous reading was at 0.3 %. The US Export Prices were +0.3 % for January while the previous reading was -0.1 %. The US Import Prices were +0.6 % while the previous month was -0.1 %. MBA Purchase Applications for the composite index were down 6.4 % while the previous weeks was 3.4 %. The NFIB Small Business Optimism Index came in at 88.9 while the previous reading was 88.0. The ICSC-Goldman Store Sales weekly sales were at -2.5 % while the previous reading was at 2.4 %. The Redbook Store Sales was 2.4 % while the previous reading came in at 1.5 %. The US Treasury Budget was at $2.9 billion while the previous reading was -$0.3 billion. Thursday, the US Initial Jobless Claims is forecast at 360,000 while the previous reading was 366,000. Empire State Manufacturing Survey General Business Conditions is forecast at -1.75 while the previous reading was -7.8. Friday, we have Industrial Production forecast at 0.3 % unchanged from the previous reading. Capacity Utilization is forecast at 78.9 % while the previous reading was 78.8 %. The manufacturing portion is forecast at 0.2 % while the previous reading was 0.8 %. Consumer Sentiment is forecast at 75.0 while the previous reading was 73.8.
About 70.3 % of the 364 Standard & Poor's companies reporting earnings to date have exceeded expectations. McDonald's Corp. (MCD) was down 1.16 % to $94.00 as President Obama had announced his quest to raise the minimum wage to $9.00 from $7.25. His idea was to parallel the cost of living with the minimum wage to help low-income families increase their standard of living to the times. McDonalds has about 14,000 locations. The Republican rebuttal brought up the point that the higher paying jobs may decrease the number of workers that may be employed. Coca Cola (KO) was down 0.96 % to $37.20 as global sales increased 3 % during the fourth quarter while forecast at a 5.4 % growth target and a weak Euro performance. Goodyear Tire & Rubber Co. (GT) was up 1.59 % to $14.08. Hewlett-Packard (HPQ) was down 0.53 % to $17.01. International Business Machines (IBM) was up 0.02 % to $200.09. Time Warner (TWX) was up 0.67 % to $52.85. Dell Inc. (DELL) was up 0.36 % to $13.84 as it announced a potential leveraged buyout to the tune of $24.4 billion. Google (GOOG) was up 0.24 % to $782.59 today. The earnings season kicked off with Alcoa Inc. (AA) which is up today 0.89 % to $9.11. The potential advances in light of the economic drag created by the "fiscal cliff", the election and hurricane Sandy may have kept a lid on any aggressive buying. The Commerce Department reported that it is estimated that Hurricane Sandy may have cost about $35.8 billion in private assets and perhaps $8.6 % in government losses. The Fed's flood-insurance program or FEMA may also render $7.5 billion. The drought may also have wreaked havoc on the farming community with perhaps losses upward toward $24 billion in the fourth quarter. The Chicago Board of Options Exchange Volatility Index (VIX) increased 2.69 % to 12.98.
The European Union and the US are to begin a free-trade and investment agreement talks that may be valued at about $1 trillion in annual trade of both goods and services. The idea is to cut tariffs and regulations that may impede trade. The G-7 addressed the so called "currency wars" with perhaps an interpreted approval of Japans move to weaken the Yen. They added later that there are concerns on the move. The Bank of Japan Governor Masaaki Shirakawa surprised the nations with an early withdrawal of leadership. His exit date is March 19th and the feeling is that some dynamic monetary easing may spring from the early resignation. Thursday also includes an interest rate decision from the Bank of Japan as Governor Masaaki Shirakawa has stepped down from office. European Central Bank (ECB) President Mario Draghi commented that the "currency wars" per se seem to be quite overdone. His commitment is unmoved when it comes to his goals of price stability and support of the Euro FX. The "currency wars" have been up for discussion as many nations have devalued their currency such as Venezuela devaluing the Bolivar, which helped the debt instruments within the country. Devaluation typically may buoy the export trade of a country as the goods and services may be purchased for less giving them a bargain appeal. The Institute of International Finance called for a more coordinated banking system will meet with the G-20 this week (February 15 and 16) in Moscow. Talks may cover the Euro FX as over or under valued. Germany would like to keep the Euro FX strong and to keep tab of the inflation. The ECB has concerns over the stronger Euro FX may impede export trade. The European Union summit had some progress as they agreed to a seven-year budget of reforms. The talks in Brussels took 25 1/2 hours to arrive on the budget details. The 2014 to 2020 proposal included a $960 billion euros spending ceiling. The European Central Bank President Mario Draghi presented his Introductory Statement to reflect on the .75 % interest rate to remain unchanged and the concerns over the appreciation of the Euro FX. Back on July 26th, Draghi stated that he will do what is necessary to preserve the European Monetary Union, which was extremely positive for the indices. Markets in China and Taiwan are closed for the Lunar New Year holiday. Hong Kong will be closed February 11th - 13th.
E-Mini S&P 500 Chart.
Thursday, what to expect? We maintain a bullish bias until the (March) E-Mini S&P 500 penetrates $1495.50! Wednesday, we anticipate an inside to higher to outside day! Today's range was $1522.00 - $1513.00. The market closed at $1517.25. Our comfort zone or point of control for this market appears to be $1517.25. Our anticipated potential range for Thursday's trading could be $1525.50 - $1504.50. Longer-term projections for the ESH13 are for $1520.00 - $1527.00 as a potential next level of consolidation. The chart retains the bullish trend leaving a gap between $1425.75 and $1438.25. According to gap theory about 70 % of the time the market may fill in the gaps, but this market has shown some strength to continue higher at least for the near-term. It still remains vulnerable as it is overbought.
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~ Barack Obama~
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