The U.S. Economy – A December to Remember

78461676On average, December has been good for the U.S. stock market, and this year should be no exception. The U.S. economy remains strong, despite weakness outside the U.S. (more on that below). Solid manufacturing data and an improving labor market and have contributed to strength in the stock market and a positive, though still cautious, consumer outlook. Continue reading

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ECB Meeting: Quantitative Easing is coming, but will it benefit bonds?

126857887Today, at their monthly interest rate meeting, the ECB announced no significant changes to their monetary policy settings. Market expectations had recently shifted from expecting an immediate start to sovereign Quantitative Easing (QE), to looking for a signal that sovereign QE would be implemented in Q1 2015.

In some respects, that was what ECB President Draghi delivered, albeit in a less definitive fashion than the market would have liked. Mr. Draghi told the press conference following the meeting that ECB officials remain committed to reassessing the economic situation in Q1 2015. But despite noting that the ECB is unanimous on the need for additional non-conventional monetary policy measures (i.e. QE) if needed, it appears that the ECB wants to bide its time to assess the effectiveness of already-announced stimulatory measures. These include the Targeted Long-Term Refinancing Operations (TLTRO’s) and the Asset-Backed and Covered Bond purchase programmes, both of which are really only now gaining traction, and which Mr. Draghi expects to have “sizeable impacts”.

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Why are Americans so Pessimistic about the U.S. Economy?

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This is the first in a three-part series on Innovation Trends Retooling the U.S. Economy.

Five years after the Great Financial Crisis (GFC), despite improvements in GDP growth and employment, the U.S. public still seems to be oppressed by a cloud of negative sentiment. A recent PewResearch Survey (7/14/14) found that a majority of Americans still perceive the economic climate as poor or fair at best (83%), a level still far below pre-crisis sentiment.

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OPEC + Central Banks = Volatile Markets

Last Week in the Capital Markets


463134635OPEC’s failure to cut production shocked the market:

Commodities: On Thursday, OPEC didn’t cut production. WTI crude lost $7 on Friday, ended the week down $10 to $66 (lowest since 2009). Gold fell $21 to $1,183.

Currencies: More of the same. The euro ended the week up 0.5% against the dollar; the yen declined another 1%. The Russian ruble and Brazilian real lost 8% and 2%; respectively … I guess the prior week’s bounce wasn’t a bottom, just a pause.

Global Bonds: Most Eurozone sovereign yields fell to record lows as European Central Bank (ECB) speakers continue to hint at QE. German 10-year yields fell 7 basis points (bps) to 0.66%; peripheral spreads generally narrowed. Spain’s 10-year fell below 2% for the first time ever. Irish 10-year yields broke 1.5%. Japanese 10-year yields fell 4 bps to 0.42%.

U.S. Bonds: Treasuries participated in the global rally; energy continues to weigh on the corporate sector. The 10-year Treasury yield dropped 13 bps to 2.18%; the 10-year TIPs yield fell 6 bps to 0.39%. The Barclays U.S. Aggregate Bond Index returned 0.5% for the week. The BoAML High Yield Index returned 0.0% (flat) as its OAS rose another 10 bps to 4.64%.

International Equities: Markets like QE. The MSCI Europe Index was up 0.9% in U.S. dollar terms. The MSCI Japan Index was down 0.3%. The MSCI Emerging Markets (EM) Index ended flat. Within EM, China and Korea led; Russia and Brazil were notably weak.

U.S. Equities: OPEC’s decision drove sector-level returns. The S&P 500 Index rose 0.2%, extended its winning streak to six weeks. Consumer Discretionary (+2.5%, led by retail…lower gas prices free up spending money) and Information Technology (+2.1%) sectors led. Energy (-9.5%) was by far the weakest sector, reacting to commodity prices; Materials (-3.1%) and Industrials (-0.5%) were also down on the week, with oil-linked businesses lagging.

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All Fairly Quiet on the Western Front

181593521Last Week in the Capital Markets

U.S. Equities: The S&P 500 quietly worked higher last week, ending up 1.2%. Materials (+2.8%) and Energy (+2.5%) led. Commodity prices were up last week, and mining companies liked the People’s Bank of China easing. Telecoms, the prior week’s leader, returned -1.7% last week; no other sector ended in negative territory.

  • International Equities: A pretty good week, except in Japan. MSCI Europe was up 2.4% in USD terms…broad rally, with roughly half the gain coming Friday after ECB president Draghi talked of more quantitative easing (QE). MSCI Emerging Markets returned 1.4%. Russia and Brazil had been notable laggards; last week MSCI Brazil rose 12% and MSCI Russia rose 5% in USD terms. MSCI Japan was down 0.9% last week.
  • Bonds: A quiet week for U.S. bonds with high yield bonds lagging again. The 10-year Treasury yield ended one basis point (bp) lower, at 2.31%; The Barclays U.S. Aggregate Bond Index returned 0.1% for the week. The Bank of America Merrill Lynch High Yield Bond Index returned -0.4%. Globally, ECB President Draghi’s comments accelerated a rally in peripheral eurozone (EZ) sovereigns. Japanese 10-year yields declined 2 bps to 0.46%, and German 10-year yields fell 1 bp to 0.73%.
  • Currencies: The dollar rose modestly against the euro and yen; the Russian ruble and Brazilian real bounced. The euro ended the week down 0.5% against the dollar; the yen declined another 0.9%. Most key EM currencies ended up against the dollar. The ruble and real (down 28% and 15%, respectively since June 30) each rose just over 3% last week.

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