US markets began the session less than one percent higher but have since hovered around yesterday’s close despite uplifting news on TARP repayments and economic indicators. The US Treasury announced earlier that ten banks have been approved for repayment of TARP funds that will total $68 billion though the agency would not name any of the approved firms. The returned money may be used to expand other plans such as the Public-Private Investment Program meant to help create a market for banks to remove toxic debt off their balance sheets. Also adding to the upside was a rise in economic optimism to the highest in seven months and a further decline in inventory. The lack of reaction in the main three indices is largely a reflection of the significant move seen since March and the notion that much of today’s news has already been priced in. Despite the uplifting signs however, there are still lingering concerns as Chrysler’s bankruptcy sale to Fiat gets delayed while credit card delinquencies continue to rise. Elsewhere in the currency arena, the US dollar has begun to weaken against the majors following a strong start for the currency earlier in the week.
[B]Economic Optimism[/B] as released by the IBD/TIPP came in at 50.8 for June from 48.6 in the previous month. The figure fell in May but the increase in June now matches the November level, a seven month high. Economic outlook has continued to rise as well for the third monthly gain along with optimism rising in personal finances while that of federal policies at 46.4 came in at the highest in more than a year. The sharp rise in the indicator reflects significant efforts by the US government to restore growth through fiscal and monetary means in the past year. Improving optimism is often considered an early indicator for a turnaround as consumers tend to return to previous spending habits and limiting the amount of disposable income stored in savings.
[B]Wholesale Inventories[/B] for June fell 1.4% versus expectations for a decline of just 1.1%. The previous month’s 1.6% drop was also revised lower to 1.8%. Inventories have fallen in the past eight months as business continued to cut back in the face of slowing demand. Consequently, job cuts have led to more than six million more unemployed since the start of the recession in December 2007. Looking deeper into the release, automotive inventory fell for the fourth month with a 4.5% decline as the industry continues to suffer. Also seeing a considerable drop was durable goods, which fell 2.2% as sales climbed. Meanwhile, drugs and groceries posted increases in inventory at 1.2% and 0.4% respectively. Despite lower stockpiles that may limit further job cuts, the inventory/sales ratio came in above 1.3 for the fifth month as demand remains weak. Of the sectors that make up the total measure, four of the ten continue to have ratios that exceed 2.0, signalling that further downside in inventories is likely.