The FOMC Holds Steady as Markets Hit a “Tipping Point”


Observations on the Capital Markets – Week Ended August 1, 2014

The FOMC met last week, expressed satisfaction and maintained course. While their policy decisions (continue the taper—now $25b—and keep the Fed Funds rate where it is) were no surprise, the language of the Fed statement was tweaked to reflect the continued/continuing improvement in the economy and labor markets (e.g.: “the likelihood of inflation running persistently below 2% has diminished somewhat”).  The Fed feels it is accomplishing its goal…so a continuation of policy normalization is appropriate.

At the same time, the Fed statement said “…a range of labor market indicators suggests that there remains significant underutilization of labor resources.” Analysis: the Yellen Fed is moving cautiously…with Japan and Europe still weak, the Fed appears willing to risk an inflationary boom in the U.S. to minimize the likelihood of having to fight a recession and/or deflation when it has a bloated balance sheet and low Fed Funds rate, but very robust tools to fight inflation.  As I said on CNBC last week, a submarine commander doesn’t give the order to submerge when most of the hatches are closed.

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A Quick Summary of the SEC’s New Money Market Rules

Last Wednesday, the SEC approved amendments on money market fund (MMF) rules. My colleague, Seth Roman, a portfolio manager who specializes in the sector, summarized the areas of reform as they relate to institutional and retail money market investors. I thought I’d share that with you here.

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Are Weak Emerging Markets Linked to Fed Tapering?

The current selloff in Emerging Markets (EM) may be peripherally related to Federal Reserve (Fed) tapering, but any linkage is more psychological than mechanical. In general, Fed tapering is expected to result in a renormalizing of bond yields (i.e. the 10-year Treasury working its way back to 3.5% or a little higher this year), but the Fed is still easing – just a little less aggressively – and they are not tightening. Continue reading

A Quiet Santa Claus Rally Leads Us into the New Year

Weekly Market Report
Observations on the Capital Markets – Week Ended December 27, 2013:

  • Signs of acceleration for the U.S. economy
  • Still mixed news on housing
  • Meanwhile, in the markets, Santa Claus came quietly to town
  • In China, the cash crunch eases

Signs of Acceleration for the U.S. Economy Last Week . . .
Last week’s economic news was generally strong, providing momentum for the economy as we step into 2014. The U.S. Q3 GDP growth rate was revised up to 4.1%, and the Chicago Fed National Activity Index (a weighted average of 85 monthly indicators of national economic activity) rose in November, signaling an accelerating economy.

  • New factory orders for durable goods rose in November – up 10.9% year over year (y/y).
  • Initial unemployment claims dropped to 338k.
  • Personal Income rose 0.2% month over month (m/m) in November (2.3% y/y).
  • November consumer spending hit the highest level in five months – up 3.5% y/y.
  • Still no inflation: the PCE (Personal Consumption Expenditures) Price index was up 0.9% y/y; core was up 1.1%.

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Is This the ‘New Normal’?

Wardwell’s Weekly Market Report

Observations on the Capital Markets – Week Ended October 25, 2013

  • Markets settle into a new “normal”
  • Mixed data for labor, housing and the economy
  • Watching Europe, China and Japan
  • Next week: Wednesday’s Fed statement and lots more data

Markets Settle into a New “Normal”
All sorts of economic data were released last week, but volatility has dropped: rightly or wrongly, market forecasts about the pace of quantitative easing (QE) and earnings growth in the U.S. appear to have coalesced around an outlook for “slow growth with ongoing QE”.

  • Currencies: The dollar dropped about 1/2% against the euro and yen
  • Bonds: The 10-year Treasury yield fell 7 basis points (bps) to 2.53%; the 10-year TIP yield fell 8bps to 0.34%. Key indexes returned 0.5% with credit outperforming as the BoA Merrill Lynch High Yield Index fell 4bps to 442. Foreign sovereign markets were generally quiet.
  • Equities: The S&P 500 was up almost 1% for the week, led by Industrials, Utilities, and Consumer Discretionary. Financials and Energy lagged. The MSCI Europe was up about the same, but MSCI Emerging Markets was down 1% and MSCI Japan fell more than 2%.
  • Commodities: Gold was up 2%; WTI oil was down 1%.

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2nd Quarter U.S. GDP — OK not Great. New Reporting on What’s Counted Questionable

Wardwell Market Report 7/31/13

Second quarter 2013 U.S. Gross Domestic Product (GDP) growth came in at 1.7% (flash estimate) better than the 1%-ish growth some feared . . . but first quarter growth was revised down from 1.8% to 1.1%, so first-half growth is not surprising on the upside, despite the decent second quarter report.

  • Personal consumption expenditure growth was weaker than typical, holding growth down.
  • Nonresidential investment, residential investment, and business inventories were fine.
  • The trade deficit (a small increase) and government (essentially flat after two quarters of being a drag) were small numbers. Continue reading

How Does the Fed’s Recent Action Compare to EM Central Banks?

In an interview on Bloomberg Radio with Tom Keene and Ken Prewitt, I shared my thoughts on the Fed’s recent announcement that it would continue its QE efforts for the time being. If you missed the segment, I’ve summarized that conversation here for you. (Note that this is not an official transcript of our conversation).

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