Today's news release said the level of wholesale inventories rose sharply in February. But the level of sales declined by the largest percentage since January of 2007 and the turnover rate increased to its highest level since last September.

Besides the wholesale inventory news, stocks were pressured by rising oil prices. They not only divert business and consumer spending from other areas of the economy, but they increase production and transportation costs which drive up prices of goods in general.

Falling supplies drove up oil futures. The Energy Department's Energy Information Administration said that inventories of crude oil fell last week by 3.1 million barrels (one barrel equals forty-two gallons). This was only the third weekly decline this year and the largest since the first week of the year. On a year-over-year basis, supplies were down by 4.9%, the largest Y/Y gap since mid-February.

The report said that inventories of gasoline fell by 3.4 million barrels, the fourth consecutive weekly decline following eighteen weeks of consecutive gains. Levels were the lowest they have been since mid-January. But, on a year-over-year basis, they were up by 10.2%.

Inventories of distillates, which include diesel and heating fuel, fell by 3.7 million barrels last week, a ninth consecutive drop and the eleventh in the last twelve weeks. Levels were down by 11.5% from the same time last year, the worst Y/Y margin since December of 2004.

In commodities trading, the price of a barrel of light, sweet crude oil for next month delivery rose by $2.37 on the New York Mercantile Exchange to settle at $110.87. The price replaced the March 13th close of $110.33 as the record high. By the end of stock trading, the Dow had lost 0.39%; the S&P 500, 0.81%; and the Nasdaq, 1.13%.

Tomorrow, the jobless claims report will raise the employment issue once again. In last Thursday's report, the Labor Department said the seasonally adjusted level of initial claims for state unemployment benefits rose by 38,000 in the week before to 407,000. The jump was larger than forecasters had predicted and the level was the highest since September of 2005. Moreover, a reading above 400,000 is considered a sign that hiring is not keeping pace with layoffs.

The four-week moving average, which smoothes out some of the short-term volatility in the data series, rose by 15,750 to 374,500, the highest level since early October of 2005. For the year-to-date (thirteen weeks), the average weekly initial claims figure is 351,385. For the same period last year, the average was 296,615.

The level of continuing claims for the week ending March 22 (continuing claims must be at least a week old) rose by 97,000 to 2.937 million. This was the highest reading since July of 2004. The four-week average rose by 32,250 to 2.859 million, the highest reading since September of 2004. For the year-to-date (twelve weeks), the average continuing claims figure has been 2,779,083. For the same period last year, the average was 2,500,167.

Following such a large jump in the initial claims level last week (the largest in two months), a partially offsetting retreat is expected for last week. The continuing claims level for the week of March 29 will show the effects of the initial claims jump reported for that period.

Also out tomorrow morning is the report on international trade for February. According to the Commerce Department's last report, the seasonally adjusted value of imports exceeded that of exports by $58.2 billion in January. While the deficit figure was larger than December's, it was notably less than the $59.5 billion that analysts had predicted. Moreover, data revisions trimmed December's originally reported gap of $58.8 billion to $57.9 billion. Revisions also trimmed each of the preceding four months' deficit readings by $0.5 billion, though each of the deficits of the first six months of last year was revised higher by an average of $0.1 billion.

Estimates for February call for a narrower deficit of between $57.5 billion and $58.0 billion. Narrower deficit figures mean smaller trade-related subtractions from gross domestic product estimates. So, the lower February's deficit figure is, the more it will benefit stocks and undercut bonds.

Bonds will be facing some supply pressure tomorrow morning in any event as the Treasury will be auctioning an additional amount of last January's issue of 10-Year TIPS (Treasury Inflation Protected Securities). The last reissue was in October and it drew decent demand. Bids exceeded the offer amount by 2.05 to 1, up from the 1.88 bid-to-cover ratio in the previous reopening auction in April of last year and only slightly lower than the 2.09 ratio in the reopening auction of October 2006. Noncompetitive bids, a measure of individual investor demand, totaled $38 million, the highest amount in a reopening since April of 2006.

Foreign demand was a little soft but better than in that seen in last April's reopening. Indirect competitive bids, which include those from foreign central banks, received 37.1% of October's offering. This was up from last April's award portion of 18.6% but below the average of 43.0% for the reopening auctions prior to October's in the current issue cycle which began in 2003.

Tomorrow's offering will have a face value of $6 billion, the same as in the last two reissues. The deadline for competitive bids is 1:00 PM Eastern Time. Non-competitive bids must be tendered by noon.

Later in the afternoon, the Treasury will release its budget figures for last month. In March of last year, the value of government outlays exceeded that of receipts by $96.3 billion. A smaller deficit of about $80.0 billion is predicted for last month, but this is because February's huge $175.6 billion deficit was larger than expected and may have been due in part to calendar issues.

Yet, even if March's deficit comes in at the predicted level, the running total for the fiscal year to date (begun last October) would be a deficit of $343.3 billion. This would by $84.9 billion larger than the $258.4 billion bottom line for the same period in the 2007 fiscal year. The budget affects the bond market since it indicates the Treasury's borrowing needs. Higher deficits mean more Treasury debt securities will be issued which will compete with those already in the market.

10:30 AM EDT : Treasuries are ahead this morning as the economic news of the day was bond-friendly; that is, bearish, which supports the case for more Fed rate cuts. Stocks are lower but losses are currently modest.

In the major economic release of the day, the Commerce Department reported that, according to initial estimates, the seasonally adjusted level of wholesale inventories rose in February by 1.1%. The increase was much larger than the 0.5% that forecasters were predicting. In addition, January's previously reported increase of 1.0% was revised up to 1.3%. Past data was restated in late March due to revised seasonal adjustments.

Rising levels can be a bullish indicator if the move is seen as anticipating rising demand. But today's report indicated that the level of sales fell in February by 0.8% following a 2.3% rise in January (previously reported as 2.7%). The decline was the largest in thirteen months. The drop in sales pushed the inventory-to-sales ratio up to 1.12 from January's 1.10.

The I/S ratio is the value of stocks on hand at the end of a month divided by the value of sales for the month. It indicates how many months it would take to entirely deplete existing inventory at the prevailing sales pace. The lengthening of the turnover rate suggests a reduction of demand pressure on the production process.

In addition to the inventories news, stocks are being pressured by this week's start of the corporate earnings report season. Negative guidance from United Parcel Service is also weighing against the market though the retail sector is getting some support from a better than anticipated earnings report from Circuit City.

In industry news, the Mortgage Bankers Association of America reported that its index of mortgage application activity rose last week by 5.4%. The move was seen as a stabilizing reaction to recent volatility. The index had fallen by 28.7% the week before after a 48.1% jump the week before that. The purchase index rose last week by 8.1% following an 11.8% drop and a 10.6% rise. The refinance index rose by 3.4% following a 38.1% decline and an 82.2% spike. Despite the latest increase in the refinance index, the category accounted for 52.2% of all applications -- down from 53.4% the week before.

The index of applications for conventional loans rose by 3.8% and was not far from where it stood a year earlier. The index of government loans rose by 12.9%. Indicating the rise in demand for the safety of such loans is the fact that the latest index was 178.3% higher than where it was a year earlier. Avoidance of risk can also be seen in the level of demand for adjustable rate loans. Although the portion of applications for such loans rose slightly last week, they accounted for just 6.5% of application activity (up from 5.4% the week before) . . . .

source: Lion, Inc.