Update 1:05 p.m.:

After a very lethargic trading session, the stock market fell rather suddenly as the close approached.  The Dow had remained in a narrrow range and was down about 40 points with 30 minutes to go.  But a wave of selling struck and the Dow closed down 104 points.  Oddly, stocks had been following the dollar, but in the last few minutes it seemed that the dollar rallied after stocks fell.  I wouldn't place much importance on this last move in the trading day any more than the last hour of Friday's session when it rallied.   But we'll be closely watching the markets overnight.  This close might not sit too well with foreign traders. 

Bond prices recovered minor early losses as stocks fell.  The 2-year closed at .77%, the 5-year 2.24%, and the 10-year was unchanged at 3.57%. 

Tomorrow we'll Wholesale Inventories which might contain data that would trigger a revision in 4th quarter GDP.  We'll also get a number that no one will pay attention to.  That is the National Federation of Independent Business Small Business Index.  I'll explain tomorrow why I think that's important.

Finally, I have posted a new Longer-term Commentary.  I hope it helps clarify any questions you have regarding the leveraged dollar plays. 

Update 11:30 a.m.:

As mentioned in the Morning Comment, traders (me too) had expected some fireworks today after last week's tumult.  Turns out.... not so much.  The markets have been absolutely dead today.  Stocks have traded tick for tick with the dollar, but the currency has traded in a narrow range.  The dollar is midway between the low and the high for the day, and the Dow is mirroring that.  The Dow is currently down 32 points, which is about halfway between the high and low.

With so little going on in other markets today, bond traders have little to do other than ponder the auctions which start tomorrow.  The 2-year is .79%, the 5-year 2.26%, and the 10-year is down 6/32s to yield 3.59%. 

Update 7:25 a.m.:

Traders remain in the one-trick pony mode.  Equity traders are reacting the dollar's every .001 change vs. the euro.  Instead of trading higher at the open, as the futures market had indicated, stocks traded lower as the dollar rallied very slightly from 1.367 vs. the euro to 1.360.  The Dow hit a low of -79 early on.  The Dow is now down only 21 points because the dollar has backed off to 1.368.  Every wiggle in the currency kicks off orders to buy or sell.  Overall, the market is quiet and volume is low. 

Bond prices are slightly lower, but there is little volume.  The 2-year is .78%, the 5-year 2.24%, and the 10-year is lower by 5/32s to yield 3.58%.

Morning Comment:

Traders were expecting some fireworks over the weekend.  But, other than the ones at the Super Bowl, there were none.  A few European ministers said reassuring things regarding the Greece and other’s debt situations, but there was no grand announcement.  Despite that, the markets are surprisingly quiet.  The dollar is only marginally lower against the euro, and stocks in Europe are close to unchanged. Futures trading is indicating a mildly higher opening in the U.S.  But we learned a lesson last week.  Confidence is fragile around the globe, and any hint of trouble drives trades into the dollar and treasuries and out of riskier assets.  Traders will have to be looking over their shoulders all this week and beyond. 

After thoroughly dissecting the jobs report most economists believe there was more good than bad, and I don’t disagree.  There were certainly some positive forward looking signs in the hours worked and temporary workers in particular.  The word of caution though is can we believe the numbers?  The BLS announced they had undercounted job losses by 1.2 million workers over the past twenty-four months.  Why should we trust the latest report we got?  Also, many of the modeling adjustments they used for this report were highly questionable.  I still contend we should ignore jobs reports in the November-February period.  Still, it good to see some positive developments at the beginning of the year instead of negative.

There isn’t much in the way of economic data this week.  The only two numbers that matter come on Thursday with the Weekly Jobless Claims and Retail Sales reports.  There will be some headlines of note on Wednesday.  Bernanke will address Congress regarding the methods the Fed will use to tighten credit when warranted.  In no way will he lay out any timetable, but he might lay out economic conditions that must be met.    

Bond prices are close to unchanged as well.  The 2-year is .78%, the 5-year 2.24%, and the 10-year is down 1/32 to yield 3.58%.  The Treasury will conduct three big auctions this week of 3-year, 10-year, and 30-year issues.  Demand is expected to be relatively strong, but the decline in yields as a result of last week’s activity might drive some buyers away. 

I’ll be back with updates, but at least it looks like a quieter day is ahead.

Finally congratulations to the New Orleans Saints.  It's a great story.  But a word of advice to the producers of next year's Super Bowl - go younger with the half-time entertainment next year.  Just sayin'.   

Dwight Johnston