This afternoon, I read the statement from the meeting between ECB President Mario Draghi and the Federal Reserve Vice Chair Stanley Fischer, and it seems that there is a clear tug-o-war between the European Central Bank (ECB) and the European nations, as they are still resisting true reform and are instead looking for cheaper and cheaper money.

By citing Keynes famous remakes in 1933, he's giving the market fits:

• Keynes: “Recovery must come before reform”
• Draghi: “Reform must come before recovery”

There was serious hope the ECB chairman would provide more stimulus, but that hasn't been the case.  He wants Europe to suck it up and make it easier to start businesses, lower taxes and spark true growth. He would also like rich nations (particularly, Germany) to kick in more money to the area, but their exports are down 5.6% in August, so it’s not clear how much they want (or can) help their neighbors. Obviously our market has been on a rollercoaster, and most of the anxiety and fear are about our trading partners in Europe. Don’t forget that while the housing collapse sparked the selloff, it was the European crisis that made it exponentially worse for the equities market.

Inventories & Jobless Claims

By Jennifer Coombs, Research Analyst

While the ECB and Federal Reserve are continuing to worry the equity indices, there were two major economic releases that ought to have kept the rally going…

Firstly, the August wholesale trade report noted a substantial unwanted build in inventories which swelled by 0.7% against a decline of 0.7% in sales. The difference sent the stock-to-sales ratio popping up 1.19 from 1.17, this is the heaviest reading since February 2014. Much of the build in inventories was tied to the auto sector where inventories increased by 0.6% while sales declined 0.5%. In prior months, a large buildup would have been great since sales were solid and strong; however the manufacturing sales that were observed in September indicate that another risk of inventory build might occur. When autos are excluded the stock-to-sales ratio should have only rose to 1.15 from 1.14. Heavy inventory buildups also occurred among farm products, lumber, professional equipment, and petroleum products. The factory orders report from last week also showed that inventories increased relative to sales. At this moment, heavy inventories are negative for future production and employment. Business inventories, which are primarily for retail sales, will be released next week. All eyes will be on the level of buildup in that sector.

On the other side, there is improvement in jobless claims, once again. Initial jobless claims for the week ended October 4^th edged lower by 1,000 to a lower-than-expected 287,000 while the 4-week average declined by a very steep 7,250 to 287,750. Relative to a month ago, the average is down by 7,500 which ought to show some early signs for strength in the October jobs report. This average is also at a new recovery low – the lowest level since February 2006. The continuing claims, lagged by one week, also tell a similar story. For the week ended September 27^th, continuing claims fell by 21,000 to 2.381 million, which is also a new recovery low. The 4-week average also reached a new recovery low of 2.414 million – a difference of 28,000. The unemployment rate for insured workers was still at its low for the 4^th straight week at 1.8%. While layoffs may be lower, that doesn’t always imply that hiring is going to increase. The claims data should have been positive for the market, but any and all gains were given back.