David Morris

LAST week saw very low trading volumes thanks to US Labor Day, Eid and Rosh Hashanah. But trading desks are back to full strength and market participants are anxious to get back to work to make full use of the trading time that’s left in 2010.

We kicked off in fine form yesterday with a rally in equities following the release of strong industrial production and benign inflation data from China. Basel III saw European regulators agree to new capital rules for banks and a timetable that is far from onerous.

This week sees the release of US and UK retail sales and inflation data; the Philly Fed manufacturing index and consumer sentiment. While these could move markets, it is Thursday’s US weekly unemployment claims which should be of particular interest. It won’t just be the headline number that will garner attention, but the revision to the previous week’s count. Last Thursday, unemployment claims came in at 451,000. This was considerably better than the consensus estimate of 470,000 but went against the trend of recent releases. Unfortunately data from nine states had to be estimated due to difficulties in collecting the numbers over the Labor Day holiday. As financial blog site Zero Hedge pointed out, whenever the Bureau of Labor Statistics has revised its unemployment claims data, 90 per cent of revisions have been upward.

Data revisions tend to get ignored or overlooked. No doubt this is because a revision lags and therefore is seen as less important. But at a time when trust in government statistics is low, it is important for reported data to be as transparent and reliable as possible. Hopefully any revision to last week’s data will prove to be immaterial.

Meanwhile, the S&P is making another charge higher. It took out resistance at 1,108 last week and has now broken above its 200-day moving average at 1,115. The next target is 1,130, which will mark the 50 per cent retracement of the April to May pull-back. So perhaps it is this level, rather than economic data, which dominates traders’ thoughts.