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
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Posted on July 17, 2014 by Giordano Lombardo
Summer is time for vacation, and getting ready for a trip has become almost a ritual for me: pack bags for my large family, load the car, don’t forget the GPS and check weather conditions. The last two points, I believe, apply not only to planning a safe and comfortable personal trip, but also to navigating the financial markets.
The financial “weather” seems nice: volatility is extremely low across almost all asset classes, as a consequence of the extra-loose monetary policy. However, as with the weather, we are aware that financial conditions can rapidly change. History suggests that periods of exceptionally low volatility should be treated with skepticism, as they have usually preceded vicious market turmoil. Continue reading
Filed under: Equity Market Insights, Europe, Fixed Income Market Insights, GDP, Giordano Lombardo, Inflation, Macroeconomics, United States | Tagged: Bonds, Corporate Profits, Fixed Income, Market Bubbles, rising interest rates, Valuations | 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 30, 2014 by Sam Wardwell
Observations on the Capital Markets – Week Ended June 27, 2014
Summer, summer, summertime – time to sit back and unwind. The Fresh Prince and DJ Jazzy Jeff might have been talking about the quiet tone last week in the capital markets.
- Can you spell Goldilocks? Stocks, bonds, and commodities all rallied in the first half of 2014…for the first time since 1993.
- Currencies: The Euro and Yen each rose 0.5%-1% against the dollar, extending their gains for the month.
- Bonds: The 10-year Treasury yield fell 9 basis points (bps) to 2.54%; the 10-year TIP yield fell 8 bps to 0.27%.The Bank of America Merrill Lynch High Yield Index (BoAML HY) widened 1 bp to 3.48%. The Japanese 10-year bond fell to 0.55%, a 2014 low. Eurozone bond markets were generally quiet.
- Equities: The S&P 500 Index declined almost imperceptibly last week. Within the index, Utilities and Consumer Discretionary (each up 1.0%) led; media companies rallied when the Supreme Court effectively shut down Aereo. Industrials (-1.7%) lagged; Consumer Staples (-1.3%) and Energy (-0.9%) were also weak. MSCI Europe and Japan were each down 1.5-2%. The MSCI Emerging Markets Index was down a bit.
- Commodities: WTI Oil was down about $1 (1%)…still not really reacting to Iraq. Gold, up 3% last week, gained another $5 (0.5%).
Filed under: Equity Market Insights, Europe, GDP, Inflation, Macroeconomics, Political, U.S. Dollar, United States | Tagged: Capital Markets, currencies, ECB, economy, emerging markets, employment, equity markets, Europe, European markets, Fed Action, GDP, housing, inflation, Japan, Sam Wardwell, Ukraine, US GDP | 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
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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 4, 2014 by Giordano Lombardo
Despite an uptick in volatility and spreads, Russia remains an important market for investors. For fixed income, the recent widening of spreads that followed the country’s intervention in Ukraine may represent an opportunity. For equity investors, these events highlight an increasingly complex outlook that may or may not offer opportunity at current levels. Continue reading
Filed under: Equity Market Insights, Europe, Fixed Income Market Insights, Giordano Lombardo, Macroeconomics, Political, United States | Tagged: Russia, Urkaine | 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.
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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
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