Bailouts are bullish! Good things come in bailout packages, especially if you are a commodity bull. Despite rumors that the Greece package was in jeopardy and the IMF wanted no part of this thing, the truth is the bailout is still on! Yet at the same time weakening and disturbing economic data has to raise issues about the demand side of the equation. Will the weak data bring us a QE3 or does the Fed realize that would just feed commodity price inflation and do little to get money back into the real economy. What is a Federal Reserve official do to?
Well the truth is that they can't do it by themselves. The federal government is a mess and Obama's health care is freezing hiring across the business sector. That of course does not bode well for this week's big jobs report. Weakening manufacturing at a discouraging pace and the fact that home prices have plunged to the lowest level since 2002 does not bode well for the sustainability for a recovery.
The show vote on raising the debt limit failed to pass as expected. The politicians want to make the debt an election issue as opposed to a real economic issue thereby holding back growth and confidence. Without real spending cuts the confidence in the US is waning.
China is the other issue the market is watching as their currency manipulation is still causing imbalances across the global economy. In the meantime, a Chinese manufacturing gauge showed the slowest pace of activity in at least nine months. China also is dealing with drought and power shortages. Diesel imports are rising. The market is focusing on a Reuters report that China's banking regulators were planning a massive clean-up of billions of dollars of local government debt.
Oil also got a boost on problems with the TransCanada Corporation and the Keystone pipeline. The shutdowns of the pipeline stopped its 591,000 barrel-a-day capacity line and will cut into building supplies in the US temporally. That is the second shutdown of this line which is why I am now calling it the Keystone cop pipeline. Enbridge also reported that a power outages due to storms shut more than one of their pipelines. So now we won't be surprised when we see a "surprise" drop in crude supply next week.
Geo-political risk is still high, at least with Yemen coming apart at the seams. In Bahrain the leadership is promising reform and Iran of course is still lying to the world about their nuclear intentions. OPEC meets next week and will try to legitimize their over-production by raising their official quota by at least 2 million barrels a day.