Friday, August 29, 2014
Capital Markets Update
By Louis S. Barnes Friday, August 29, 2014
Mortgage interest rates improved slightly this past week despite economic data that was mostly stronger than expected. Economic data stronger than expected included July Durable Goods Orders, the June FHFA Home Price Index, August Consumer Confidence, weekly jobless claims, the second look at Q2 GDP, July Pending Home Sales, the August Chicago Purchasing Managers Index, and the University of Michigan Consumer Sentiment Index. Durable Goods Orders increased by the most on record, driven mainly by aircraft orders. Consumer Confidence reached its highest level since October of 2007. Economic data weaker than expected included July New Home Sales, the June Case Shiller 20 City Home Price Index, and July Personal Spending. Increasing geopolitical tensions in Ukraine and the Middle East along with the increased likelihood of stimulus from the European Central Bank have supported Treasury and Mortgage prices. The Treasury auctioned $93 billion of 2 Year Notes, 5 Year Notes, and 7 Year Notes which were met with reasonably strong demand. Corporate profits during the second quarter were the strongest in four years.
The Dow Jones Industrial Average is currently at 17,095, up almost 100 points on the week. The crude oil spot price is currently $95.10 per barrel, up almost $2 per barrel on the week. The Dollar strengthened versus the Euro and Yen on the week.
Next week look toward Tuesday’s ISM Manufacturing Index, Thursday’s International Trade and Jobless Claims, and Friday’s employment report for August as potential market moving events. All markets are closed on Monday for Labor Day.
Mortgage interest rates improved slightly this past week despite economic data that was mostly stronger than expected. Economic data stronger than expected included July Durable Goods Orders, the June FHFA Home Price Index, August Consumer Confidence, weekly jobless claims, the second look at Q2 GDP, July Pending Home Sales, the August Chicago Purchasing Managers Index, and the University of Michigan Consumer Sentiment Index. Durable Goods Orders increased by the most on record, driven mainly by aircraft orders. Consumer Confidence reached its highest level since October of 2007. Economic data weaker than expected included July New Home Sales, the June Case Shiller 20 City Home Price Index, and July Personal Spending. Increasing geopolitical tensions in Ukraine and the Middle East along with the increased likelihood of stimulus from the European Central Bank have supported Treasury and Mortgage prices. The Treasury auctioned $93 billion of 2 Year Notes, 5 Year Notes, and 7 Year Notes which were met with reasonably strong demand. Corporate profits during the second quarter were the strongest in four years.
The Dow Jones Industrial Average is currently at 17,095, up almost 100 points on the week. The crude oil spot price is currently $95.10 per barrel, up almost $2 per barrel on the week. The Dollar strengthened versus the Euro and Yen on the week.
Next week look toward Tuesday’s ISM Manufacturing Index, Thursday’s International Trade and Jobless Claims, and Friday’s employment report for August as potential market moving events. All markets are closed on Monday for Labor Day.
Friday, August 22, 2014
Capital Markets Update
By Louis S. Barnes Friday, August 22, 2014
Mortgage interest rates increased slightly this past week as economic data was mostly stronger than expected. Economic data stronger than expected included the August NAHB Housing Market Index, July Housing Starts, July Building Permits, weekly jobless claims, July Existing Home Sales, the August Philadelphia Fed Business Index, and July Leading Economic Indicators. Housing Starts were the strongest in eight months, Building Permits were the best since last November, and the Philadelphia Fed Business Index reached its best level since March of 2011. Year over year, though, Existing Home Sales are down 4.3%. Inflation data was reasonably tame with July CPI up 2.0% year over year. Excluding the food and energy components, July core CPI was up 1.9% year over year. In Europe, manufacturing and services sector activity slowed in August. In China, the preliminary purchasing manager’s index was weaker than expected. Geopolitical tensions eased slightly which lessens the support for the relative safety of U.S. Treasuries. Fed Chair Yellen indicated today that labor resources remain significantly underutilized.
The Dow Jones Industrial Average is currently at 17,016, up about 350 points on the week. The crude oil spot price is currently $93.22 per barrel, down almost $4 per barrel on the week. The Dollar strengthened versus the Euro and Yen on the week.
Next week look toward Monday’s New Home Sales, Tuesday’s Durable Goods Orders and Consumer Confidence Index, Thursday’s second look at Q2 GDP, Jobless Claims, and Pending Home Sales Index, and Friday’s Personal Income and Outlays as potential market moving events.
Mortgage interest rates increased slightly this past week as economic data was mostly stronger than expected. Economic data stronger than expected included the August NAHB Housing Market Index, July Housing Starts, July Building Permits, weekly jobless claims, July Existing Home Sales, the August Philadelphia Fed Business Index, and July Leading Economic Indicators. Housing Starts were the strongest in eight months, Building Permits were the best since last November, and the Philadelphia Fed Business Index reached its best level since March of 2011. Year over year, though, Existing Home Sales are down 4.3%. Inflation data was reasonably tame with July CPI up 2.0% year over year. Excluding the food and energy components, July core CPI was up 1.9% year over year. In Europe, manufacturing and services sector activity slowed in August. In China, the preliminary purchasing manager’s index was weaker than expected. Geopolitical tensions eased slightly which lessens the support for the relative safety of U.S. Treasuries. Fed Chair Yellen indicated today that labor resources remain significantly underutilized.
The Dow Jones Industrial Average is currently at 17,016, up about 350 points on the week. The crude oil spot price is currently $93.22 per barrel, down almost $4 per barrel on the week. The Dollar strengthened versus the Euro and Yen on the week.
Next week look toward Monday’s New Home Sales, Tuesday’s Durable Goods Orders and Consumer Confidence Index, Thursday’s second look at Q2 GDP, Jobless Claims, and Pending Home Sales Index, and Friday’s Personal Income and Outlays as potential market moving events.
Friday, August 15, 2014
By Louis S. Barnes Friday, August 15, 2014
Mortgage interest rates improved slightly this past week as economic data was mostly weaker than expected. Economic data weaker than expected included July Retail Sales, weekly jobless claims, the August New York Empire State Manufacturing Index, and the University of Michigan Consumer Sentiment Index. Retail Sales had their worst reading in six months and the Consumer Sentiment Index fell to its lowest level since last November. Inflation data was tame with the July Producer Price Index up just 1.7% year over year and up 1.6% year over year excluding the food and energy components. Also supporting lower rates is economic data out of Europe. Germany’s economy contracted 0.2% in the most recent quarter. Italy is in recession and France’s economy is flat. This week’s data call into question whether the Federal Reserve will be able to increase short term interest rates anytime soon. The Treasury auctioned $67 billion of 3 Year Notes, 10 Year Notes, and 30 Year Bonds which were met with mixed demand. Geopolitical tensions continue between ISIS and Iraq, Ukraine and Russia, and Israel and Hamas.
The Dow Jones Industrial Average is currently at 16,589, up over 30 points on the week. The crude oil spot price is currently $96.63 per barrel, down almost $1 per barrel on the week. The Dollar strengthened versus the Yen and Euro on the week.
Next week look toward Monday’s Housing Market Index, Tuesday’s Consumer Price Index (CPI) and Housing Starts, Wednesday’s FOMC Minutes, and Thursday’s Jobless Claims, Philadelphia Fed Survey, and Existing Home Sales as potential market moving events.
Mortgage interest rates improved slightly this past week as economic data was mostly weaker than expected. Economic data weaker than expected included July Retail Sales, weekly jobless claims, the August New York Empire State Manufacturing Index, and the University of Michigan Consumer Sentiment Index. Retail Sales had their worst reading in six months and the Consumer Sentiment Index fell to its lowest level since last November. Inflation data was tame with the July Producer Price Index up just 1.7% year over year and up 1.6% year over year excluding the food and energy components. Also supporting lower rates is economic data out of Europe. Germany’s economy contracted 0.2% in the most recent quarter. Italy is in recession and France’s economy is flat. This week’s data call into question whether the Federal Reserve will be able to increase short term interest rates anytime soon. The Treasury auctioned $67 billion of 3 Year Notes, 10 Year Notes, and 30 Year Bonds which were met with mixed demand. Geopolitical tensions continue between ISIS and Iraq, Ukraine and Russia, and Israel and Hamas.
The Dow Jones Industrial Average is currently at 16,589, up over 30 points on the week. The crude oil spot price is currently $96.63 per barrel, down almost $1 per barrel on the week. The Dollar strengthened versus the Yen and Euro on the week.
Next week look toward Monday’s Housing Market Index, Tuesday’s Consumer Price Index (CPI) and Housing Starts, Wednesday’s FOMC Minutes, and Thursday’s Jobless Claims, Philadelphia Fed Survey, and Existing Home Sales as potential market moving events.
Friday, August 8, 2014
By Louis S. Barnes Friday, August 8, 2014
Make sense of all of this? May as well start with facts.
The US 10-year Treasury broke to 2.36% overnight, it’s lowest in more than a year. German 10s reached an all-time low 1.04%, their 2s trading below zero briefly, now paying 0.004% (ours are 0.432%), and Italian 10s are rising in yield.
These moves are “flight to quality.” The marker: no follow-through in US mortgages, still sitting close to 4.25%. When the world is scared it wants sovereign IOUs, not MBS even if government guaranteed. Unless the sovereign looks like it’s in trouble itself.
To make sense, isolate the economic effects of this geopolitical circus from other forms of misery, and from the general course of economies.
US domestic data is on fire. Maybe. The ISM reports have for a long time been excellent barometers, and in July both jumped to post-recession highs. New claims for unemployment insurance have reached weekly lows consistent with full-scale recovery. But maybe these reports do not reflect today’s economy. A WSJ/NBC poll this week: Will life for our children be better than for us? 21% yes, 76%, no.
Another head-fake: our June trade deficit fell big, 7% on one month to $41 billion, which should mean higher GDP. However, all trade fell, both imports and exports, and the imports falling the most were consumer goods, which does not speak well of domestic demand. Or the global economy. Netherlands-based CPB has found an overall decline in world trade. No matter its harm to US wages, global trade has been the 25-year engine enriching the world.
Isolate, isolate… new European data is far weaker than forecast, and sooner than could be explained by sanctions on Russia. GDP in Portugal and Italy slipped negative, and even Germany may have done so. Euro-zone inflation is down to 0.4%, which means some sectors and some entire nations are deep into deflation.
Geopolitics. The situation is Orwellian. Doublespeak. Economic recoveries which are black jokes on the word. Enemies are suddenly allies, or simultaneously allies and enemies. The US has begun airstrikes in Iraq for humanitarian reasons, hitting ISIS and its allies the Sunnis, who when allied with us brought the Iraq war to its end. The Shia government of Iraq, semi-supported by the US, is also striking ISIS/Sunni with newly arrived Russian SU-25s. Mr. Kerry this morning spoke of “genocide” in Iraq, an eye-blinker to most of the world, which has been watching Syria and Gaza unaffected by civilization — Gaza the work of newly allied Israel, Egypt, and Saudi Arabia.
Minor spats can run out of control, but we seem able to spill vast amounts of blood in long-running but contained score-settling. Watching so many places in conflict at once is unsettling, especially as the US has pulled back from power engagement without forethought or skill. However, ugly as it all is, only the Ukraine has a chance to go Sarajevo. (Later, emboldened Israel versus Iran, but later.)
Ambrose Evans-Pritchard, economics editor at the UK Telegraph has thought it through. “Russia’s economy is no bigger than California’s. This is an economic showdown between a $40 trillion power structure, and a $2 trillion producer of raw materials that has hollowed out its industrial core.” Evans-Pritchard and several others this week concluded that Czar Vladimir’s only card is an outright invasion of Ukraine, time not on his side, and his play/no-play decision is close, perhaps a few days.
About half of today’s flight to quality is Ukraine/Iraq, and the rest from new European recession. The direct effects on the US?
Ahem. Beneficial. Rates are down. The dollar is stronger which minimizes any threat of inflation. We are less dependent on external trade than anybody.
Enough to put the Fed on hold? Uh-uh. In 1998 the Fed eased into global economic trouble and was wrong, only a stock bubble for its trouble. The Fed was puzzled 2004-2006 that its .25%-per-meeting water-torture, taking the Fed funds rate from 1.00% to 5.25%, did not cause mortgage rates to rise much, and thus failed to intercept a housing bubble. If Yellen thinks the economy is heating, she’ll be comin’.
Make sense of all of this? May as well start with facts.
The US 10-year Treasury broke to 2.36% overnight, it’s lowest in more than a year. German 10s reached an all-time low 1.04%, their 2s trading below zero briefly, now paying 0.004% (ours are 0.432%), and Italian 10s are rising in yield.
These moves are “flight to quality.” The marker: no follow-through in US mortgages, still sitting close to 4.25%. When the world is scared it wants sovereign IOUs, not MBS even if government guaranteed. Unless the sovereign looks like it’s in trouble itself.
To make sense, isolate the economic effects of this geopolitical circus from other forms of misery, and from the general course of economies.
US domestic data is on fire. Maybe. The ISM reports have for a long time been excellent barometers, and in July both jumped to post-recession highs. New claims for unemployment insurance have reached weekly lows consistent with full-scale recovery. But maybe these reports do not reflect today’s economy. A WSJ/NBC poll this week: Will life for our children be better than for us? 21% yes, 76%, no.
Another head-fake: our June trade deficit fell big, 7% on one month to $41 billion, which should mean higher GDP. However, all trade fell, both imports and exports, and the imports falling the most were consumer goods, which does not speak well of domestic demand. Or the global economy. Netherlands-based CPB has found an overall decline in world trade. No matter its harm to US wages, global trade has been the 25-year engine enriching the world.
Isolate, isolate… new European data is far weaker than forecast, and sooner than could be explained by sanctions on Russia. GDP in Portugal and Italy slipped negative, and even Germany may have done so. Euro-zone inflation is down to 0.4%, which means some sectors and some entire nations are deep into deflation.
Geopolitics. The situation is Orwellian. Doublespeak. Economic recoveries which are black jokes on the word. Enemies are suddenly allies, or simultaneously allies and enemies. The US has begun airstrikes in Iraq for humanitarian reasons, hitting ISIS and its allies the Sunnis, who when allied with us brought the Iraq war to its end. The Shia government of Iraq, semi-supported by the US, is also striking ISIS/Sunni with newly arrived Russian SU-25s. Mr. Kerry this morning spoke of “genocide” in Iraq, an eye-blinker to most of the world, which has been watching Syria and Gaza unaffected by civilization — Gaza the work of newly allied Israel, Egypt, and Saudi Arabia.
Minor spats can run out of control, but we seem able to spill vast amounts of blood in long-running but contained score-settling. Watching so many places in conflict at once is unsettling, especially as the US has pulled back from power engagement without forethought or skill. However, ugly as it all is, only the Ukraine has a chance to go Sarajevo. (Later, emboldened Israel versus Iran, but later.)
Ambrose Evans-Pritchard, economics editor at the UK Telegraph has thought it through. “Russia’s economy is no bigger than California’s. This is an economic showdown between a $40 trillion power structure, and a $2 trillion producer of raw materials that has hollowed out its industrial core.” Evans-Pritchard and several others this week concluded that Czar Vladimir’s only card is an outright invasion of Ukraine, time not on his side, and his play/no-play decision is close, perhaps a few days.
About half of today’s flight to quality is Ukraine/Iraq, and the rest from new European recession. The direct effects on the US?
Ahem. Beneficial. Rates are down. The dollar is stronger which minimizes any threat of inflation. We are less dependent on external trade than anybody.
Enough to put the Fed on hold? Uh-uh. In 1998 the Fed eased into global economic trouble and was wrong, only a stock bubble for its trouble. The Fed was puzzled 2004-2006 that its .25%-per-meeting water-torture, taking the Fed funds rate from 1.00% to 5.25%, did not cause mortgage rates to rise much, and thus failed to intercept a housing bubble. If Yellen thinks the economy is heating, she’ll be comin’.
Friday, August 1, 2014
Capital Markets Update
By Louis S. Barnes Friday, August 1, 2014
In a world and life filled with uncertainty it is gratifying to watch markets behave exactly as they should.
Bonds and mortgages got a bad scare on Wednesday, rates up sharply, but as the full picture revealed itself rates are back where we started. A lot else is not where it began this week, nor will it be soon.
The catalyst for Wednesday, like an overdone pool-table break: 2nd quarter GDP arrived at a 4% growth rate. Everyone expected a rebound from the negative 1st quarter, but not an upward revision in that negative (from minus 2.9% to minus 2.1%), and especially not indications of rising spending, incomes and inflation. Real personal consumption expenditures jumped 2.5% in Q2 versus 1.2% in Q1, and the PCE “deflator” (converting nominal to after-inflation) popped to 1.9% from 1.4%.
The immediate reaction: here comes the Fed. Bonds and mortgages instantly flipped to bearish trend.
But the world is a big, complicated, and interconnected place. On Wednesday Europe at last dropped meaningful sanctions on Czar Vladimir, certain to slow the world to some degree from wherever it was going.
On Wednesday the stock market sat and watched the show. Thursday morning another Fed scare: the employment cost index (ECI) in Q2 jumped .7% from .3% in Q1. Then, beginning in Europe, stocks free-fell; at this writing the Russell 2000 has lost 4.14% of its value in 48 hours.
Friday morning… the gorilla, job data for July. Payroll gains were slimmer than forecast, no acceleration anywhere in the report, and soggiest of all: hourly earnings rose from $24.44 to $24.45. One measly cent, statistically unchanged. The pattern continues: most of those taking jobs seem to be throwing in the towel, accepting inferior pay. Revisiting data from the day before: the rise in ECI came from benefits, not wages, likely transient or another accounting quirk of ObamaCare.
Tie all of this together: the stock market is very vulnerable to the Fed, whenever it does move. The data do not support the Fed moving any earlier than sometime mid- to late 2015, and the Fed will need to see a lot of growth and income gains before then.
Mortgages and bonds are vulnerable, too, but long-term rates are held down by Europe’s troubles. The German 10-year Bund fell to 1.14%. Those looking for safety find more yield in our bonds. Newly disturbing signs in Europe: Club Med bond yields have been falling with the Bund, but rose today. Lousy economic data and the collapse of Portugal’s Banco Espirito Santo have Italian and Spanish yields rising. That’s credit fear, default fear. The Euro-zone ever closer to the deflation precipice, inflation 0.4%.
Then the fun part: dismissing tin-hat people and theories. The Philly Fed’s Plosser dissented from the Fed’s on-course meeting minutes. Too easy, he has always thought. In his pinched mind the Fed should never do anything. Richard Fisher, prez of the Dallas Fed twice this week insisted that the Fed should accelerate rate hikes. This wavy-haired graduate of the Boehner Tanning Salon is a classic Texas yahoo, a grandstander without the conviction to cast his own dissent.
The stock market’s two-day crater is a “beneficial correction.” Uh-huh. Although it’s true that the market has just coughed up this summer’s unreasonable gains, its prior gains are not necessarily sustainable.
Who knew… despite Arabia’s general hatred of Israel, most of it hates and fears Hamas more. Thus a flash point does not flash.
Who has it right? Bill Gross of PIMCO, still holding title as Best All-Time Bond Trader. “Structural global growth rates have come down due to a yawning gap of aggregate demand relative to aggregate supply.” If you have over-invested in supply, none of the demand-boosting tricks can work. Only time will re-balance.
As frustrating as it may feel here in the US, we are adapting faster than any other place.
In a world and life filled with uncertainty it is gratifying to watch markets behave exactly as they should.
Bonds and mortgages got a bad scare on Wednesday, rates up sharply, but as the full picture revealed itself rates are back where we started. A lot else is not where it began this week, nor will it be soon.
The catalyst for Wednesday, like an overdone pool-table break: 2nd quarter GDP arrived at a 4% growth rate. Everyone expected a rebound from the negative 1st quarter, but not an upward revision in that negative (from minus 2.9% to minus 2.1%), and especially not indications of rising spending, incomes and inflation. Real personal consumption expenditures jumped 2.5% in Q2 versus 1.2% in Q1, and the PCE “deflator” (converting nominal to after-inflation) popped to 1.9% from 1.4%.
The immediate reaction: here comes the Fed. Bonds and mortgages instantly flipped to bearish trend.
But the world is a big, complicated, and interconnected place. On Wednesday Europe at last dropped meaningful sanctions on Czar Vladimir, certain to slow the world to some degree from wherever it was going.
On Wednesday the stock market sat and watched the show. Thursday morning another Fed scare: the employment cost index (ECI) in Q2 jumped .7% from .3% in Q1. Then, beginning in Europe, stocks free-fell; at this writing the Russell 2000 has lost 4.14% of its value in 48 hours.
Friday morning… the gorilla, job data for July. Payroll gains were slimmer than forecast, no acceleration anywhere in the report, and soggiest of all: hourly earnings rose from $24.44 to $24.45. One measly cent, statistically unchanged. The pattern continues: most of those taking jobs seem to be throwing in the towel, accepting inferior pay. Revisiting data from the day before: the rise in ECI came from benefits, not wages, likely transient or another accounting quirk of ObamaCare.
Tie all of this together: the stock market is very vulnerable to the Fed, whenever it does move. The data do not support the Fed moving any earlier than sometime mid- to late 2015, and the Fed will need to see a lot of growth and income gains before then.
Mortgages and bonds are vulnerable, too, but long-term rates are held down by Europe’s troubles. The German 10-year Bund fell to 1.14%. Those looking for safety find more yield in our bonds. Newly disturbing signs in Europe: Club Med bond yields have been falling with the Bund, but rose today. Lousy economic data and the collapse of Portugal’s Banco Espirito Santo have Italian and Spanish yields rising. That’s credit fear, default fear. The Euro-zone ever closer to the deflation precipice, inflation 0.4%.
Then the fun part: dismissing tin-hat people and theories. The Philly Fed’s Plosser dissented from the Fed’s on-course meeting minutes. Too easy, he has always thought. In his pinched mind the Fed should never do anything. Richard Fisher, prez of the Dallas Fed twice this week insisted that the Fed should accelerate rate hikes. This wavy-haired graduate of the Boehner Tanning Salon is a classic Texas yahoo, a grandstander without the conviction to cast his own dissent.
The stock market’s two-day crater is a “beneficial correction.” Uh-huh. Although it’s true that the market has just coughed up this summer’s unreasonable gains, its prior gains are not necessarily sustainable.
Who knew… despite Arabia’s general hatred of Israel, most of it hates and fears Hamas more. Thus a flash point does not flash.
Who has it right? Bill Gross of PIMCO, still holding title as Best All-Time Bond Trader. “Structural global growth rates have come down due to a yawning gap of aggregate demand relative to aggregate supply.” If you have over-invested in supply, none of the demand-boosting tricks can work. Only time will re-balance.
As frustrating as it may feel here in the US, we are adapting faster than any other place.
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