Economic Journal - Monday, 5/20/2013

(As of 7:18 am PST)

 

It’s a quiet day today with earnings season winding down and a lack of significant economic reports.  One report, from the Chicago Fed, showed slowing economic activity across the nation, down slightly from the prior month.  Gold continues its slide of the last two weeks, down $10 per ounce while oil looks like it will break its winning streak, down as well.  Markets are slightly to the negative, but solid, considering the strong May rally we have seen.  Asian markets were up strongly overnight but reports of an economic slowdown in China are creating some anxiety. Europe is somewhat muted.  It looks like today might be a day of profit taking and consolidation with investors looking for the next catalyst to propel indexes to new record highs.

Economic Journal - Friday, 5/17/2013

(As of 7:25 am PST)

 

Two positive economic reports are supporting buying this morning.  The preliminary reading of the University of Michigan/Thomson Reuters consumer sentiment index for May jumped to 83.7 from 76.4 in April, beating forecasts and surprising investors.  Secondly, a report on 10 leading economic indicators showed improvement in April, bouncing back 0.6% after falling in March.  The market seems strong today despite a back and forth week which included disappointing economic data and conversation about the winding down of the Fed’s bond-buying policies.   Events that would normally cause selling pressure were for the most part ignored this week as markets continued to drift higher.  Gold received a beating this week tumbling almost 5%.  The US dollar strengthened this morning to its strongest level in 3 years on speculation of QE coming to an end.  A strengthening dollar is bad for dollar-denominated commodities including gold.  Europe is looking strong today and most Asian markets finished up.  With May half over, the normal “sell in May, go away” adage may have to wait until next year, as the market eyes a fourth straight week of gains. 

Economic Journal - Thursday, 5/16/2013

(As of 7:18 am PST)

 

Another data rich morning has investors struggling to find direction.  Jobless claims surged last week with 32,000 new people filing for unemployment benefits, bringing the jobless claims figure to a 6 week high.  Housing starts fell 16.5% in April, led by a big drop in apartment building construction.  Building permits, a sign of future demand in housing, rose 14.3% however.  Consumer prices fell for the second straight month and the inflation rate for the past 12 months fell to 1.1% in April from 1.5% in March.  Little evidence exists of inflationary pressure, which is good for the Fed’s interest rate policies and for consumers.  Markets were hovering around the unchanged line, until the Philly Fed index was released showing a negative reading in May.  The Philly Fed measures manufacturing activity in the Philadelphia region.  Any reading below 0 indicates more companies are contracting than growing.  After notching its highest closing level since 2008 yesterday, Europe’s key benchmark index moved lower Thursday.   Asian markets ended the day mostly higher, while Japan’s Nikkei finished lower despite positive economic data.  Gold continued its tumble from yesterday, down 1% as the dollar strengthened.  Interest rates took a dive with the 10 yr. treasury rate dropping to 1.88%.  Economic reports have generally been disappointing this week, but that hasn’t deterred investors from taking these markets to new heights.

Economic Journal - Wednesday, 5/15/2013

(As of 7:18 am PST)

 

The seesaw week for stocks continues as markets begin the day lower after a nice rally yesterday.  A slew of economic data swayed investors to the downside as markets etched new record highs in yesterday’s session.  The Empire State Manufacturing survey fell into negative territory in May, an unexpected contraction and well below economist’s forecasts.  Industrial production also fell 0.5% in April, while February and March were downwardly revised.  Wholesale prices fell in April led by a decline in the price of gasoline and vegetables.  Stripping out the volatile food and energy sectors, core wholesale prices ticked higher by 0.1%.  The Federal Reserve monitors the core prices as an inflation indicator.  The low inflation pressure is a positive sign for markets, as it gives the Fed more room to keep interest rates low.  Lastly, a positive report for housing showed home builders confidence rising in May after 3 straight months of declines.  Internationally, Asian markets rallied on the heels of Wall Street’s gains yesterday.  Europe is mixed as investors digested disappointing GDP data from France and Germany.  France reported GDP contracted 0.2% in the 1st quarter, the 3rd contraction in 4 quarters.  Germany said Q1 GDP growth was 0.1%, well below the 0.3% estimate.  The Euro declined to a 6 week low against the dollar.  Gold and oil prices are lower and treasury prices rose sending rates lower.  Investors have plenty to digest this morning, but the tone so far seems like a negative one. 

Economic Journal - Tuesday, 5/14/2013

(As of 7:23 am PST)

 

The market is snapping back after yesterday’s losses.  Data is light today but included a Labor Department report that showed import prices fell 0.5% in April.  Also, an index that measures optimism among small businesses rose in April after falling in March.  The tone in the market is generally positive today as investors needed a day to shake off fears of the Fed’s exit strategy from its bond buying program.  Speaking in Stockholm today, Philadelphia Fed President Charles Plosser reiterated his views that the Federal Reserve should consider its strategy to slowdown asset purchases by the end of the year.  Plosser was quoted directly about the Fed's bond buying in a Wall Street Journal article released late Friday that had investors in a tizzy over the weekend.  Plosser remarked today that he expects US unemployment to be near 7% by the end of the year.  In company news, Yahoo is getting a boost after an analyst raised its price target on the stock, and Sony shares are up 10% after an influential hedge fund manager urged Sony’s Chief that the company ought to be broken up.  Internationally, Asian markets finished the day mostly lower and Europe is on the rebound after a positive report on industrial production showed production rising 1% in the Euro-Zone in March.  Oil prices are lower today as the International Energy Agency (IEA) said strong oil production in the US is expected to outpace demand from emerging economies.   Gold prices are also slightly lower on the day.

Economic Journal - Monday, 5/13/2013

(As of 7:25 am PST)

 

Markets hit a bit of a speed bump this morning after etching new record highs last week.  A Wall Street Journal article released Friday spooked investors, suggesting that Fed officials have mapped out a plan to exit the central bank’s $85 billion per month bond buying program. It shouldn’t come as a surprise that the Fed is preparing its exit strategy; however the article has caused investors to fear it may be sooner rather than later.  Analysts don’t expect liquidity to dry up anytime soon, citing the Fed’s key economic indicators, the unemployment rate and inflation, as targets that appear to be a long way off.  Equity selling was cooled after a positive report on retail sales showed sales rose 0.1% in April, exceeding expectations.  Internationally, most Asian markets finished the day lower, with Japan bucking the trend on a continued weakening of the yen.  European stocks are trending lower.  Commodities are lower and the US dollar is higher on the Fed rumor.  It’s a “data-rich” week with reports on retail sales, CPI, industrial production, manufacturing, housing, and consumer sentiment giving investors plenty to chew on as earnings season winds down.

Economic Journal - Friday, 5/10/2013

(As of 7:24 am PST)

 

US stocks are inching higher as investors contemplate generally positive overseas trade with remarks on risk by Fed Chairman Ben Bernanke in Chicago this morning.  As we write this, Bernanke has moved into the Q&A portion of his presentation at a banking conference in Chicago, where the central bank chairman has for the most part spoken out on the Fed’s processes of monitoring risk.  Bernanke noted that the Fed is keeping an eye on “excessive risk-taking” as investors reach for yield in this low interest rate environment.  Referring mostly to the credit market, Bernanke said the Fed is monitoring the relationship between asset prices and fundamentals and the risks associated with certain assets if another crisis ensued.  Bernanke was not expected to comment on the Fed’s current bond-buying program (known as QE3), but with low inflation and a stagnant unemployment number it’s not expected that the Fed will unwind its easy money policies anytime soon.  In international news, Asian markets rallied with the Japanese Nikkei closing nearly 3% higher on the day.  Japanese stocks surged as the US dollar climbed above the psychologically important 100-yen level.  The strengthening dollar hit the price of gold, with gold losing $44/oz., or roughly 2.9%.  Oil prices were also down over 2%.  For the most part it’s been a quiet week, but expect a pickup in activity next week as several reports on retail sales, manufacturing, and housing are due out.