Posted on July 28, 2014 by Sam Wardwell
The Yellen Fed is wary of tightening too soon. It wants to see significant improvement in labor markets. (We’re seeing it.) It also wants to see evidence that U.S. inflation has formed a bottom. This precondition for a tighter Fed policy is also being fulfilled – CPI inflation has been steady and slow…but not slowing.
U.S. Economic Activity Looks Good
- Initial unemployment claims dropped to 284k, the first reading this cycle below 300k and the lowest since early 2006. These are boom-time readings, not recovering economy readings.
- CPI came in at 2.1% y/y; Core was 1.9%.
- About 200 S&P 500 companies have reported so far; more than 70% (slightly better than average) have beaten consensus.
- The Chicago Fed National Activity Index, a gauge of economic activity, was slightly above-trend.
- The Markit U.S. manufacturing PMI softened a bit, to 56.3…still strong (50 is break-even).
- The Richmond Fed’s manufacturing index (zero is break-even) rose from 4 to 7–solid; hiring was notably strong.
- The Kansas City Fed manufacturing index rose from 6 to 9, lifted by durable goods producers and employment. Rising quit rates particularly among machinists and welders were cited.
Filed under: Equity Market Insights, Europe, GDP, Macroeconomics, Sam Wardwell | Tagged: Europe, inflation, Japan, QE Tapering, Sam Wardwell, SEC Money Market Rules, the Fed | Leave a comment »
Posted on July 21, 2014 by Sam Wardwell
Observations on the Capital Markets – Week Ended July 18, 2014
Federal Reserve Chairwoman Janet Yellen’s Congressional testimony this week, in my view, was not pointing to bubbles. In her testimony, she suggested that valuations of social media and biotech stocks and lower-rated corporate debt appear “stretched.” Some observers suggested she was saying we are in a bubble. But I have a different perspective: I think she was saying, in effect, “yes, prices are high in some niches, but not generally.” In any case, it’s doubtful Yellen is shifting her focus from less-than-full-employment to the question of possible market bubbles. Continue reading
Filed under: Contributors, ECB, Equity Market Insights, Europe, Fixed Income Market Insights, GDP, Inflation, Macroeconomics, Mutual Fund Industry, Political, Sam Wardwell, U.S. Dollar, United States | Leave a comment »
Posted on July 14, 2014 by Sam Wardwell
Observations on the Capital Markets – Week Ended July 11, 2014
It was a tough week for Europe over all last week – industrial production declined in Germany, Italy, France, and the UK, with the details broadly downbeat. Trade (import and export) data, especially from Germany, was disappointing as well. But the big story in Europe last week came from Portugal, where Banco Espírito Santo (BES), a leading Portuguese bank, suffered a share price crash and trading was suspended after reports of financial irregularities.
Filed under: Equity Market Insights, Europe, Fixed Income Market Insights, Inflation, Macroeconomics, Sam Wardwell | Tagged: Banco Espirito, Capital Markets, consumer spending, labor market, Sam Wardwell, the Fed, Unemployment | Leave a comment »
Posted on July 7, 2014 by Sam Wardwell
It’s not surprising that World Cup Syndrome has historically been responsible for lower office productivity around the world – in fact, you may have seen the telling chart created by Bloomberg, which uses European Central Bank (ECB) data to track dips in trading volume during games in the 2010 World Cup.
Perhaps ‘WCS’ is owed a nod for last week’s drop in ISIS (Islamic State) activity? The so-called Group of Death (Syria, Iran, Iraq, and the caliphate formerly known as ISIS) was very quiet last week.
- ISIS renamed itself the Islamist State and said it was a caliphate.
- Iraq’s parliament appears frozen, with Sunni, Kurdish, and Shiite factions apparently unable to strike a deal.
- It appears that the Islamist State gained ground…but oil traders don’t seem worried.
Filed under: Equity Market Insights, Europe, Fixed Income Market Insights, Macroeconomics, Sam Wardwell | Tagged: Capital Markets, Central Banks, ECB, Europe, Sam Wardwell, World Cup, World Cup Syndrome | Leave a comment »
Posted on June 23, 2014 by Sam Wardwell
Observations on the Capital Markets – Week Ended June 20, 2014
Iraq news didn’t spark a flight to safety and it’s not yet clear whose side we’re on (or should be on). Fed policy seems to be on autopilot, which the markets interpret as dovish. As expected from last week’s FOMC meeting, there was no change to the taper pace or rate policy. The statement’s wording and forecasts were tweaked only slightly from the previous. Higher inflation readings and stronger labor market data didn’t lead to a material change in the language. For the Fed to react so little to the labor and inflation data apparently led “the market” to think the Fed is even more dovish. The market apparently expects the Fed to be even more dovish than the Fed expects to be. December Fed Fund futures are trading around 1.75%‑well below the Fed’s 2.5% projection. Continue reading
Filed under: Contributors, ECB, Equity Market Insights, Europe, Fixed Income Market Insights, GDP, Inflation, Macroeconomics, Political, Sam Wardwell, U.S. Dollar, United States | Tagged: China, economic indicators, government policy, U.S. unemployment | Leave a comment »
Posted on June 16, 2014 by Sam Wardwell
The Capital Markets Were Very Calm Last Week, Considering The Rising War Risks
- Equities: After three strong weeks, the S&P 500 ended the week down 0.7%. Higher oil prices boosted the index’s Energy sector to a 1.7% return; while all other index sectors declined. MSCI Europe touched six-year highs mid-week but also ended down slightly less than 1%; MSCI Japan and Emerging Markets were up slightly.
- Bonds: The 10-year Treasury’s yield ended unchanged at 2.60%; the 10-year TIP yield rose 1 basis point (bp) to 0.41%. The BoA Merrill Lynch High Yield index touched new cycle lows mid-week, ending 5 bps tighter at 3.47%. European bond markets were calm.
- Commodities: WTI was up $4.10 for the week, to $106.87 on war fears (Iraq is OPEC’s second-largest producer). Gold was up about 2%.
- Currencies: The Chinese yuan and Japanese yen each rose about 0.5% against the dollar; the euro was down almost 1%.
A Black Swan Emerges In Iraq
A week ago, ISIS (Islamic State in Iraq and Syria) in Iraq was off the radar of the news media and market strategists. It has suddenly emerged from the northwest of Iraq, which borders Syria, as a significant threat to the global economy (higher risk of a recession-causing an oil price spike). ISIS, a non-state Sunni militia and major player in the Syrian civil war, turned east (from Damascus to Baghdad), capturing several key Iraqi cities including Mosul, the nation’s second-largest. The Iraqi army apparently collapsed; Baghdad itself is perceived as threatened. Continue reading
Filed under: GDP, Inflation, Political, Sam Wardwell | Tagged: Capital Markets, China, employment, Iraq, Japan, Ukraine | Leave a comment »
Posted on June 9, 2014 by Sam Wardwell
Market and economic news last week was busy and upbeat. In the capital markets, U.S. Treasuries and gold sold off, but everything else went up. On the global economic front, there were plenty of positive signs as well.
Here are a few highlights:
1. The U.S. economy continues to expand
The Fed’s Beige Book confirms that the economy no longer needs extraordinary support from the Fed. The report showed the economy continuing to expand and the labor market continuing to improve. The pace of growth was characterized as “moderate” in seven districts and “modest” in five – a broad and robust economic recovery (weak nowhere).
Filed under: ECB, Equity Market Insights, Europe, Fixed Income Market Insights, Macroeconomics, Sam Wardwell | Tagged: Capital Markets, Central Banks, ECB, Europe, Fed Action, Giordano Lombardo, Sam Wardwell | Leave a comment »
Posted on June 2, 2014 by Sam Wardwell
Observations on the Capital Markets – Week Ended May 30, 2014
The U.S. economy shrank in the first quarter, but every indication is that weather, rather than a cyclical downturn, was the driver. While 3% GDP growth for the full-year may be difficult to achieve after the slow start, it’s not out of reach. Employment trends continue to be positive. Inflation has stabilized comfortably below 2%. Bond yields are low, making it easy for the Fed to continue to taper QE while keeping short-term rates exceptionally low. With corporate profits at all-time highs, it’s no surprise that The Dow Jones Industrial Average (16,717) and S&P 500 Index (1,923) ended the week and month at new all-time highs.
The Q1 GDP revision was not bad news—if anything, it was good news!
- Real GDP growth was revised down from 0.1% to – 1.0% (annualized), worse than the revision to -0.5% that was expected.
- A negative revision to inventories accounted for essentially all the downward revision in GDP. Final demand was essentially unchanged.
- This is very bullish. Inventories are intermediate goods, not final demand. Lower inventories now mean more need for future production; higher inventories would signal a need to slow production.
- Seasonals may have also played a role: we also got a negative Q1 GDP in 2011, when Easter was also in April, not March.
Filed under: Contributors, ECB, Equity Market Insights, Europe, Fixed Income Market Insights, GDP, Inflation, Macroeconomics, Political, Sam Wardwell, U.S. Dollar, United States | Leave a comment »
Posted on May 28, 2014 by Sam Wardwell
We’ll start this week with some market trivia – Roughly 150 of the stocks in the S&P 500 yield more than the 10-year Treasury. Continue reading
Filed under: Europe, GDP, Macroeconomics, Sam Wardwell, U.S. Dollar | Tagged: Bonds, Capital Markets, China, currencies, economy, employment, Europe, European markets, Japan, Sam Wardwell | Leave a comment »
Posted on May 19, 2014 by Sam Wardwell
U.S. Treasuries rallied last week, pushing yields to new 2014 lows – but why did it happen? War fears seem an unlikely explanation: gold and oil were well-behaved, and equities were flattish.U.S. economic fears couldn’t explain it - the data wasn’t bad - but low Eurozone GDP growth might have contributed. The trading desk buzz is that we’re seeing a short squeeze – there just aren’t enough bonds to go around. Continue reading
Filed under: Equity Market Insights, Europe, Fixed Income Market Insights, Inflation, Macroeconomics, Sam Wardwell | Tagged: Capital Markets, China, currencies, economic data, Eurozone, India, Japan, Sam Wardwell, US Treasuries | Leave a comment »