PreMarket Stock Market Report

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Before we begin today, we want to note that we are omitting discussion of the very important Monthly Oil Market Report released by OPEC this morning, because a second article will detail the petroleum market today, and recent events within it. It's going to be an otherwise busy day, so you'll find plenty of information to keep you occupied here in the meantime.

Weekly Initial Jobless Claims

New unemployment benefits filers numbered 371K for the week ended May 10, 2008. Reported this morning at 8:30 a.m., the measure was forecast just 1,000 below the actual figure, which exceeded last week's measure of 365K. So, "playing it safe," so to speak, worked for economic forecasters this week. We outlined in our weekly market planner that economists seem to keep forecasts for this important labor market barometer near prior week result. We also noted, that while we were disappointed in this fact, sometimes the past does serve as the best predictor of the future, especially with a metric that is reported so frequently (weekly).

Generally, unemployment has held recently, after starting higher earlier this year. The government's tax rebate stimulus might also support the economy over the next few months, and further limit corporate reason for workforce reduction. However, we continue to expect the retail/restaurant space to cut some fat over the course of the year. Weaker players must be weeded out of the saturated marketplace, and we've already seen some bankruptcies, Linen n' Things being the most recent. Department stores like Macy's (NYSE: M) and JC Penney (NYSE: JCP), and mall-based apparel retailers (non-teen) seem to fit the bill for trouble. Price-minded consumers are finding their way to discount shops like Wal-Mart (NYSE: WMT). The high end has held up in specialty, but in broader reaching stores like Nordstrom (NYSE: JWN), which the super-rich would still not consider their store anyway, we've seen signs of trouble as well.

Our theory is that still high costs of living and food and energy inflation, as well as credit unavailability, will continue to pinch consumer spending this year. So, we expect restaurant/retail to layoff a good amount of employees before it's all said and done. Mind you, this does not bode well for commercial real estate either.

Empire State Manufacturing Survey

The New York regional barometer of manufacturing was also reported this morning at 8:30. The General Business Conditions Index, the metric you see headlining at major media, was reported at a negative 3.2, versus consensus forecast for a reading in limbo, at 0.0. While this offers indication of slight manufacturing deterioration in May, it still marked improvement from the reading of -22.2 in March. The figure was just slightly off the 0.6 measure in April. We do not expect the market to react harshly to this mild result, as economic expectations have a low bar to hurdle at this point, despite the forecast for this month's NY figure.

The details of the Empire State report offered some reason for concern. Participants were asked about the prices paid for inputs, and responded that prices had increased 8.7% on average over the past twelve months. Respondents expected prices to continue to rise 6.8% in the coming twelve months. Here's what should concern you most. While manufacturer's selling prices had not risen much over the past 12 months (+2.9%), executives expected to raise prices by a higher level in the coming 12 months (4.1%) in order to offset their input price pressure.

So, while manufacturers shipments had decreased, they were not cutting prices to move goods, often a positive consequence of competition, and instead were raising prices due to inflation in their component and raw materials costs. Margins are being squeezed at these firms, and this explains manufacturers' contribution to the layoff count to date. If the economy were not to recover this year, you could expect more consolidation; even so, we doubt the bottom has been met yet in manufacturing. The Philly Fed Survey is up next today, at 10:00 a.m., and consensus expectations are set much lower for Philly area business conditions. Economists are looking for a reading of -20.0.

Treasury International Capital (March)

Net foreign purchases of long-term U.S. securities measured $80.2 billion in March, marking an increase from $77.9 billion in February. Roughly 60% of foreign investment came from official institutions and 40% from private investors. The figure has increased through each month of this year, but was lower over the trailing 12-months, when compared to the 12 months prior. As the dollar strengthens, or, should it continue to strengthen, we would expect demand to increase.

The momentum trade is over in the dollar, as currency investors now look to hedge bets and reverse them, looking to dollar appreciation. The problem is, the ECB becomes more likely to raise rates with each passing month, in our view. Much depends on the wherewithal of the European economy, and the commitment of Union members to the will of the whole. But, once the ECB starts raising rates, you can expect reconsideration of dollar/euro value (looking for dollar weakness again).

Industrial Production & Capacity Utilization

Here's where the real bad news originated today. Both production and capacity utilization disappointed for the month of April. Production fell 0.7%, versus expectations for a 0.3% drop. Capacity utilization fell to 79.7%, versus expectations for 80.1%. Lower capacity utilization and production means increased likelihood of consolidation and workforce reduction. This is bad news considering the measures missed forecasts. They are therefore likely to lead economists to reduce more general economic forecasts, and phone calls to equity strategists will not be enthusiastic this morning either. This compounds the impact of the regional manufacturing data. If the market declines today, this is the fundamental reason for it, though it may not be the real driver. Even so, we do not expect a significant impact as this result is still an arms length from employment figures and corporate news that would more likely move the market.

Economic Data On Tap

Check in to our "Market Moving News" section to catch the releases of the EIA Natural Gas Report at 10:30 and the Housing Market Index at 1:00 p.m.

Corporate News

Barclay's (NYSE: BCS) hit the news wires early today with its earnings news and another write-down of $1.94 billion, but the company did not announce any new financing plans. However, that seems like just a matter of time.

Carl Icahn is launching a proxy battle to elect some favorable members to the board of Yahoo! (Nasdaq: YHOO). By doing so, he'll put the fate of Yahoo into the hands of its shareholders, and out of the hands of Jerry Yang and the management team. So, you may yet get your $30+ a share, if you vote Icahn's way. We, here at "The Greek," would actually vote against Icahn. We see far too much value creation opportunity at Yahoo! to sell out at the offered price now. While the combined Microsoft (Nasdaq: MSFT), Yahoo! will still find that value, it will drive less of an impact to the giant that is Microsoft. We view the deal better for MSFT than YHOO shareholders as a result.

Please see our disclosure at the Wall Street Greek website. Article also interests: AMEX: SPY, AMEX: DIA, AMEX: DOG, AMEX: SDS, AMEX: QLD, Nasdaq: QQQQ.