▪ US Retail Sales (JAN) hypercritical into US holiday weekend and key technical activity. As noted in Wednesday's Weekly Overview (http://bit.ly/8Z5jbF) and followed up modestly in yesterday's TrendView BRIEF UPDATE (http://bit.ly/aM6snG) the Greek situation was always going to be more a short term 'save' than any sort of major sustained 'solution.' That said, we surmised this was likely to turn into a rolling crisis across the European Union that will be revisited sporadically for many, many months to come. Little did we know that it could backlash so quickly from forces right there in Europe where we had expected the next critical influence (albeit which remains extremely influential) to be today's weather-deferred release of US Advance Retail Sales. That is due to the extreme importance of economic growth as part of the solution to the Greek dilemma even as they impose significant domestic budget austerity.

▪ And the next turn in the rolling Greek/European crisis has turned up much sooner than we might have suspected in the form of some very weak Euro-zone economic data. In the first instance, Greece's own economy contracted far more sharply than expected, 0.8% in the fourth quarter; with a downward revision to the previous quarter as well. That might have not been quite so daunting if it were not for the fallout from the Chinese monetary tightening hitting home so quickly as Euro-zone Gross Domestic Product came in much weaker than expected,…

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▪ While that could be seen as typical bureaucratic stalling, in this case there are some significant issues surrounding Greek ability and desire to implement austerity measures. As we have noted previous, this also leaves us back in 1970s-style 'politico'-economic markets, where breaking political stories seem to have at least as much impact on market psychology as the ultimate economic effects. And nowhere is that more prominent than in the weather-delayed developments in the US, where attempts at bipartisanship will likely founder on the shoals of political expediency as well as honest differences in philosophy and practice between parties.

▪ Of course, that leaves us with significantly technical markets once again, as only their own assessments are meaningful indications of how price trends are likely to unfold. That much is apparent from the equities positive reaction to the removal of negative psychology in the wake of the Greek (and general European) debt crisis abating for now.

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▪ How can this be? While we hate to both revisit a major recurring theme for the umpteenth time and make it sound a bit more straightforward than it is, this is actually pretty easy: the US economy is still extremely troubled in spite of some positive headline indications. While we will have much more to say on that after today's extended technical trend discussion, suffice for now to note the following: US housing remains a mess that is deteriorating more rapidly once again, US employment is troubled in its own right (notice today's jump back up to 473,000 US Weekly Initial Jobless Claims after a specious one-week post-holiday adjustment down to 442,000) in addition to being a driver of the housing and consumer weakness, and inflation is unexpectedly strong with a weak US economy (note today's US PPI numbers.)

▪ What is most striking about the technical trend activity in the equities is the failure of the major US indices at or around key levels tested previous. That led us to question whether any further upside reaction after the recent drop is indeed in the cards, and heightens the critical nature of the markets' extended response to tomorrow's reports.

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▪ As noted in yesterday's TrendView GENERAL UPDATE (http://bit.ly/cM1NNu), stagflation is back with a vengeance, and (however well telegraphed) the Fed had to "do something" prior to today's US CPI numbers in the wake of the much stronger than expected US PPI. In fact, yesterday's move is the macro cycle mirror image of the action they were forced to take back on Thursday, August 16, 2007. Having been too sanguine about the implications of interbank market dysfunction, the Fed put through the emergency Discount Rate to 0.50% that evening. However, instead of being a well-planned and heavily telegraphed move, that was in response to a sharp equities slide, as our macro view indicated might be the case, expressed in a CNBC interview at the top of that week (http://bit.ly/13QfSv.)

▪ However, there may be a sequential pattern here which needs to be fulfilled if the fixed income market is to bottom out in the near term, which may require it selloff into lower supports first if equity markets shake off this morning's weakish economic releases. Those included mixed Euro-zone February Advanced Purchasing Manager Indices and weak UK January Retail Sales. Those important supports are DJIA 10,230, March S&P 500 future 1,090 and March NASDAQ 100 future 1,780.

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▪ Well, sort of. In fact, after promising to be far more bipartisan in his approach to the most contentious points of disagreement with the loyal opposition, this smacks of President Shifty engaging in a 'quick change' maneuver; even if actually well-intended. Just to be clear, we do not mean to imply the most derisive implications of the term 'shifty', such as criminal intent to deceive. Yet in the wake of prominent by-election losses of candidates that were strongly supported by the White House (especially a center-right Republican winning in Massachusetts) and plummeting polls for both the President and his healthcare plan, it seems that Mr. Obama is having a hard time sticking with any particular approach much beyond the next news cycle...

▪ And all of that is only important because it may backlash into equity markets and also possibly bond markets (where Kuwait, and Greece as the tip of the peripheral European iceberg still lurk in the background.) Shelving our modestly conservative political inclinations for the moment, we can only imagine that someone in the White House feels this is a clever tactic. Well here's a big heads-up for the would-be Machiavelli: it's bound to backfire…

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