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US stock market daily report (March 11, 2013, Monday)

Contributed by Millennium Traders

The Standard & Poor's 500 index (SPX) ended the trading session Monday, just nine points for an all time record high. Intraday high level for the S&P today, hit 1,556.27. Current record high for S&P stands at 1,565.15, which it reached on October 9, 2007. CBOE Volatility Index, the VIX, fell 8.2% to 11.56 on the session, closing at its lowest level since February 2007. Trading volume across the board was light to say the least which could indicate the rally is hitting some resistance.

Large-scale underfunding of the pension system for Illinois put the state in crosshairs of the Securities and Exchange Commission, as reported on Monday. Illinois is charged by the SEC with misleading municipal-bond investors by failing to disclose large-scale underfunding of the state’s pension system. “Time after time, Illinois failed to inform its bond investors about the risk to its financial condition posed by the structural underfunding of its pension system,’‘ the SEC’s acting director, George Canellos, said in a statement. An announcement from the SEC indicates the case with Illinois was settled without imposing fines or penalties on the state since over the past two years, Illinois has made strides in improving its pension disclosures. The two-year SEC investigation into Illinois’s pensions, among the most underfunded in the nation, is only the second of its kind.

President Barrack Obama, in his weekly speech on Saturday called on Republicans and Democrats to resolve the sequester gridlock so the U.S. economy can continue to create jobs. "At a time when our businesses are gaining a little more traction, the last thing we should do is allow Washington politics to get in the way,” Obama said. Making the U.S. a magnet for new jobs and ensuring a decent living should be top priority for lawmakers, said Obama, adding he will continue to reach out to both parties this week to tackle not only the sequester but, continue the dialogue on immigration reform and gun violence. The President urged politicians from both sides of the aisle to compromise on the sequester so the country can focus on nurturing a “rising, thriving middle class.” “Making progress on these issues won’t be easy. In the months ahead, there will be more contentious debate and honest disagreement between principled people who want what’s best for this country. But I still believe that compromise is possible. I still believe we can come together to do big things. And I know there are leaders on the other side who share that belief,” he said.

Conference Board, a New York-based private research group, reported on Monday that a gauge of employment trends - the employment-trends index is designed to forecast turning points in employment - increased in February by 1.1% to 111.14 for the fifth month of gains however, large federal-spending cuts making up the sequester are likely to curb job growth in coming months. "As a result of the large increase in February, and positive revisions to earlier months, the employment-trends index is signaling an improving employment environment," said Gad Levanon, macroeconomic research director at the Conference Board. "However, even though the labor market has gained in recent months, the looming sequester is likely to slow the pace of job creation in the near term." The employment-trends index is made up of eight labor-market indicators, seven of which made positive contributions during February. The largest positive contribution came from a measurement of firms with positions that they are unable to fill right now. The sole negative contribution came from a reading on consumers who said that jobs are hard to find and lockdown. From the same period in 2012, index level for February is up 3.2%.

Data released on Saturday from China indicates consumer inflation in February rose to 3.2% year-on-year, for the highest increase since April 2012. Prices were likely boosted by the Lunar New Year holiday, which often sees a spike in prices for food and other goods. After months of relatively subdued inflation, rising prices may have Chinese policy makers worried. The Chinese government releases combined data for the first two months of 2013 to avoid distortions related to the timing of the Lunar New Year holiday. Industrial production saw a 9.9% year-on-year rise in January and February. Retail sales in China were higher by 12.3% year on year during January and February. Electricity output was up 3.4% year-on-year in in January and February and fixed-asset investment rose 21.2% year-on-year. Property sales in China have been soaring, with an increase by 77.6% from levels seen during 2012 and highlighting difficulties in keeping the economy growing at a steady pace while avoiding steep rises in prices. An uptick in inflation has policy makers in China stirred just as industrial output and retail sales seem to be softening. Chen Deming, Chinese Ministry of Commerce, raised concerns about competitive currency depreciation and the effects of excessive money-printing by central banks. Deming directed comments to Japan with comments such as, “treating their neighbors as your garbage bin and starting a currency war.” Beijing has a keen interest in any greenback debasement with a large part of China’s $3 trillion foreign reserves held in U.S. dollars. Japan’s quest to raise inflation will worry Beijing if it also succeeds in chasing up prices in China with the yen falling close to 18% against the dollar, since mid-November 2012. While China officially operates a closed capital account, it is also the world’s largest trading nation, so keeping its borders sealed to money flows will inevitably be a challenge. China risks losing control of its own monetary policy with a fixed exchange rate and porous capital controls. Last week, China’s central bank reported companies and individuals had changed 684 billion Yuan ($109 billion) worth of foreign currency in January - a record for a single month. If China were to hike interest rates to curb inflation, the risk is this will only attract more capital as the interest differential with the yen or dollar widens. An option for China - internationalize the Yuan although, that goes against its reform agenda to seal its capital account.