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Pre-Market Primer: More Ugly Jobless Data and Deflation


Could this string of awful economic data open the door for QE3?

MINYANVILLE ORIGINAL A perfect storm of dismal American economic data and an ever intensifying European crisis is casting a dark cloud over the markets, but some are wondering whether central banks might see the dark cloud looming and come to the rescue.

Economic data released today points towards deflation and miserable employment prospects. Initial jobless claim spiked last week to 386,000, up 6,000 from last week's upwardly revised number.

Consumer prices dropped by 0.3% in May. Economists expected a slightly narrower drop in prices. This data echoes May's producer price index, which also showed a decline.

Falling energy prices intensified the drop in consumer prices. Excluding volatile items such as energy and food, prices inflated by 0.2%. Oil prices have fallen 17.52% since the beginning of the year. Today, crude oil futures are largely unchanged at $82.57/barrel as investors await news from OPEC's meeting in Vienna where oil exporting countries will probably keep their production ceiling where it is despite lower prices. A report yesterday by the Energy Administration showed that crude stockpiles in the US eased by 100,000 barrels last week.

European stocks sold off today amidst uncertainty over Greece's upcoming election. Stock futures in the US pared earlier gains. Dow (^DJI) futures fell 0.01% to 12,428.00. S&P 500 (SPY) futures slid 0.05% to 1,308.20 and Nasdaq (^IXIC) futures fell 0.04% to 2,521.50.

Spanish and Italian borrowing costs continued to rise today. The Spanish 10-year bond yield touched 7% this morning, surging nearly 23 basis points. Moody's cut the country's credit rating from A3 to Baa3, just one notch above utter junk. Moody's outlook for Spain's rating is negative. Meanwhile, Italy was able to sell 4.5 billion euros in three-year bonds, but only at an average yield of 5.3%, up 1.4 percentage points from one month ago.

The run on Greek banks has intensified. Yesterday, there were reports that Greeks were withdrawing as much as 500 million euros daily, and this might have increased to between 600 million and 900 million euros. As this weekend's election looms, it was reported today that the country's unemployment rate in the first quarter rose to a record high of 22.6 from 20.7, which is still better than Spain's jobless rate.

Moody's also downgraded Cyprus's credit, citing the heightened possibility of a Greek exit from the eurozone.

Microsoft (MSFT) is in talks to acquire Yammer, a social network for businesses that has features similar to Facebook (FB), for as much as $1 billion.

Shares of Nokia (NOK) plunged 9% this morning after the Finnish mobile phone company said that it will close plants and cut as many as 10,000 jobs due to a larger-than-expected second quarter loss.

Twitter: @vincent_trivett
No positions in stocks mentioned.
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