Market Matters… How do we measure progress these days? Baby steps. The financial markets did not collapse overnight and cannot be rebuilt in one day. The US auto industry did not become noncompetitive overnight and cannot be reinvented in one day. The economy did not move into recession overnight and cannot rebound in one day. The investor and consumer did not lose trust overnight and will not regain confidence in one day. And yet, the past few days brought some signs of progress, some baby steps, that the worst may be over and the long road to recovery has begun.
Despite some last minute drama at the High Court, Chrysler closed on its deal with Fiat SpA and effectively moved beyond bankruptcy. While Justice Ginsburg gave the would-be deal-breakers ( Indiana pension funds) some false hope, the Supreme Court ultimately disallowed their objections and let the transaction proceed. (Baby steps.) GM announced the hiring of a former AT&T exec to guide its rebirth and moved closer to selling its Saab unit as it “speeds” through its own restructuring. (Baby steps). In a “sign of financial repair,” the Treasury has granted its blessing to 10-major banks to repay $68 billion in TARP loans; J.P. Morgan Chase ($25 bln), Morgan Stanley ($10 bln), and American Express($3.4 bln) expect to take the plunge in the next few days. (Baby steps.) And in a sign of renewed economic strength, Texas Instruments raised its outlook for the second quarter amid growing demand for semiconductors. (Baby steps.) Meanwhile, Bank of America and Fed officials took a grilling from (grandstanding) politicos as the “he said, he said” controversy over the Merrill Lynch acquisition continued. The Obama administration ended its plan to limit compensation within financials and also is reevaluating prior proposals about consolidating regulatory bodies. In transactional news, BlackRock acquired ETF-giant Barclays Global Investors to form the largest global asset manager.
Energy prices continued the upward trek as an International Energy Agency suggested that global demand for 2009 would be stronger than previously predicted. On the supply side, a BP PLC report showed that global reserves fell in 2008, the first such decline in 10-years. Crude surged past $72/barrel for the first time this year as traders analyzed the supply/demand issues in conjunction with the ongoing prospects for an economic recovery. Likewise, gas prices rose again (for 42 straight days) to above $2.60/gallon nationally and consumers began to feel the pinch at the pumps as summer travel season arrives. (Inflation anyone? See below.)
Fixed income highlighted the trading as investors worried about ongoing demand for US government securities after a weaker than expected auction. News that Brazil and Russia may be selling treasuries to purchase IMF securities added new concerns and the yield on the 10-year moved above 4% for the first time since October 2008. A strong 30-year bond auction brought welcome relief and fixed income buyers reemerged late in the week. Equities remained relatively flat as investors had few economic releases to dissect; the Dow continued flirting with positive year-to-date territory and FINALLY closed the week “In The Black” for 2009. (Baby Steps.)
Weekly Economic Calendar
Economists are at it again. With little substantive data on the calendar, the Wall Street Journal announced results of its latest forecasting survey and a majority of respondents expect the recession to end by late-summer (though the subsequent recovery may not be as swift as many had hoped). About half even believe the Fed will be inclined to raise the funds rate (from virtually 0% today) by the middle of 2010. Despite the potential for an economic rebound, the labor market is expected to remain weak as unemployment is projected to climb just below 10% by the end of the year. (By the way, Prez O. “promised” 600,000 new jobs this summer as the stimulus package kicks into high gear.) On the inflation front, the rapid rise in oil prices does not seem to be worrying most economists surveyed (or they simply have not been paying attention), as they pegged the price of crude at $72/barrel by December 2010, very close to today’s level.
Retail sales rose in May for the first time in three months, though much of the increase reflected rising gasoline prices which is bad news for a consumer-driven economy; discretionary spending seems to be going to the gas pumps rather than for household or luxury items. Still, consumer sentiment is improving as the latest Reuters/U of Michigan confidence index rose to its highest level in nine months. The trade deficit jumped for the second month in a row as oil imports climbed, also the result of higher crude prices. Home foreclosures actually declined in May, a positive sign for housing, though its elevated level was still the third highest ever reported. The Fed Beige Book was released during the week and the messages were mixed at best. While certain regions of the country have begun to experience a resurgence in economic activity (or, at least, less contraction), others remained quite weak and ongoing challenges in the labor markets threaten to hinder any sustained recovery. Despite the recent increase in interest rates, many Fed watchers do not expect the policymakers to commit to additional treasury and mortgage-related securities purchases at the next open market committee meeting.
On the Horizon… While many economists do not see inflation as a major problem (at least, not yet), the recent rise in oil and gas prices certainly has some worried. The upcoming releases of PPI and CPI give some glimpse into the realities of current price pressures, though much of the rise in energy levels occurred even after that data was compiled. Other releases should lend greater insight into the housing and manufacturing sectors, while leading indicators serve as a predictor of the direction of the economy in the quarters to come. The government should start to recognize some return on its investments as major banks are expected to begin paying back TARP loans and move out from under the strict oversight of Geithner and Bernanke (though Citigroup and Bank of America still have a ways to go). The fixed income markets remain even more interesting than equities these days as investors grow more concerned about future demand for the ballooning US debt. Representative from Brazil , Russia, India and China get together during the week to discuss international (IMF) issues which could include talks about their future treasury holdings. (Remember…it’s still the safest bet around, isn’t it?)
Ron Brounes
www.ronbrounes.com
Despite some last minute drama at the High Court, Chrysler closed on its deal with Fiat SpA and effectively moved beyond bankruptcy. While Justice Ginsburg gave the would-be deal-breakers ( Indiana pension funds) some false hope, the Supreme Court ultimately disallowed their objections and let the transaction proceed. (Baby steps.) GM announced the hiring of a former AT&T exec to guide its rebirth and moved closer to selling its Saab unit as it “speeds” through its own restructuring. (Baby steps). In a “sign of financial repair,” the Treasury has granted its blessing to 10-major banks to repay $68 billion in TARP loans; J.P. Morgan Chase ($25 bln), Morgan Stanley ($10 bln), and American Express($3.4 bln) expect to take the plunge in the next few days. (Baby steps.) And in a sign of renewed economic strength, Texas Instruments raised its outlook for the second quarter amid growing demand for semiconductors. (Baby steps.) Meanwhile, Bank of America and Fed officials took a grilling from (grandstanding) politicos as the “he said, he said” controversy over the Merrill Lynch acquisition continued. The Obama administration ended its plan to limit compensation within financials and also is reevaluating prior proposals about consolidating regulatory bodies. In transactional news, BlackRock acquired ETF-giant Barclays Global Investors to form the largest global asset manager.
| Market/Index | Year Close (2008) | Qtr Close (03/31/09) | Previous Week(06/05/09) | Current Week(06/12/09) | YTD Change |
|---|---|---|---|---|---|
| Dow Jones Industrial | 8,776.39 | 7,608.92 | 8,763.13 | 8,799.26 | +0.26% |
| NASDAQ | 1,577.03 | 1,528.59 | 1,849.42 | 1,858.80 | +17.87% |
| S&P 500 | 903.25 | 797.87 | 940.09 | 946.21 | +4.76% |
| Russell 2000 | 499.45 | 422.75 | 530.36 | 526.84 | +5.48% |
| Global Dow | 1526.21 | 1347.38 | 1,680.43 | 1,694.76 | +11.04% |
| Fed Funds | 0.25% | 0.25% | 0.25% | 0.25% | 0 bps |
| 10 yr Treasury (Yield) | 2.24% | 2.68% | 3.86% | 3.79% | 155 bps |
Energy prices continued the upward trek as an International Energy Agency suggested that global demand for 2009 would be stronger than previously predicted. On the supply side, a BP PLC report showed that global reserves fell in 2008, the first such decline in 10-years. Crude surged past $72/barrel for the first time this year as traders analyzed the supply/demand issues in conjunction with the ongoing prospects for an economic recovery. Likewise, gas prices rose again (for 42 straight days) to above $2.60/gallon nationally and consumers began to feel the pinch at the pumps as summer travel season arrives. (Inflation anyone? See below.)
Fixed income highlighted the trading as investors worried about ongoing demand for US government securities after a weaker than expected auction. News that Brazil and Russia may be selling treasuries to purchase IMF securities added new concerns and the yield on the 10-year moved above 4% for the first time since October 2008. A strong 30-year bond auction brought welcome relief and fixed income buyers reemerged late in the week. Equities remained relatively flat as investors had few economic releases to dissect; the Dow continued flirting with positive year-to-date territory and FINALLY closed the week “In The Black” for 2009. (Baby Steps.)
Weekly Economic Calendar
Economists are at it again. With little substantive data on the calendar, the Wall Street Journal announced results of its latest forecasting survey and a majority of respondents expect the recession to end by late-summer (though the subsequent recovery may not be as swift as many had hoped). About half even believe the Fed will be inclined to raise the funds rate (from virtually 0% today) by the middle of 2010. Despite the potential for an economic rebound, the labor market is expected to remain weak as unemployment is projected to climb just below 10% by the end of the year. (By the way, Prez O. “promised” 600,000 new jobs this summer as the stimulus package kicks into high gear.) On the inflation front, the rapid rise in oil prices does not seem to be worrying most economists surveyed (or they simply have not been paying attention), as they pegged the price of crude at $72/barrel by December 2010, very close to today’s level.
Retail sales rose in May for the first time in three months, though much of the increase reflected rising gasoline prices which is bad news for a consumer-driven economy; discretionary spending seems to be going to the gas pumps rather than for household or luxury items. Still, consumer sentiment is improving as the latest Reuters/U of Michigan confidence index rose to its highest level in nine months. The trade deficit jumped for the second month in a row as oil imports climbed, also the result of higher crude prices. Home foreclosures actually declined in May, a positive sign for housing, though its elevated level was still the third highest ever reported. The Fed Beige Book was released during the week and the messages were mixed at best. While certain regions of the country have begun to experience a resurgence in economic activity (or, at least, less contraction), others remained quite weak and ongoing challenges in the labor markets threaten to hinder any sustained recovery. Despite the recent increase in interest rates, many Fed watchers do not expect the policymakers to commit to additional treasury and mortgage-related securities purchases at the next open market committee meeting.
| Date | Release | Comments |
|---|---|---|
| June 10 | Balance of Trade (04/09) | Deficit expanded for 2 nd month in row |
| Fed Beige Book | Economy remains weak with signs of recession easing | |
| June 11 | Retail Sales (05/09) | Strong showing, but due to rising gas prices |
| Initial Jobless Claims (06/06/09) | 19 th straight week of record continuing claims | |
| The Week Ahead | ||
| June 16 | PPI (05/09) | |
| Housing Starts (05/09) | ||
| Industrial Production (05/09) | ||
| June 17 | CPI (05/09) | |
| June 18 | Initial Jobless Claims (06/13/09) | |
| Leading Eco. Indicators (05/09) |
On the Horizon… While many economists do not see inflation as a major problem (at least, not yet), the recent rise in oil and gas prices certainly has some worried. The upcoming releases of PPI and CPI give some glimpse into the realities of current price pressures, though much of the rise in energy levels occurred even after that data was compiled. Other releases should lend greater insight into the housing and manufacturing sectors, while leading indicators serve as a predictor of the direction of the economy in the quarters to come. The government should start to recognize some return on its investments as major banks are expected to begin paying back TARP loans and move out from under the strict oversight of Geithner and Bernanke (though Citigroup and Bank of America still have a ways to go). The fixed income markets remain even more interesting than equities these days as investors grow more concerned about future demand for the ballooning US debt. Representative from Brazil , Russia, India and China get together during the week to discuss international (IMF) issues which could include talks about their future treasury holdings. (Remember…it’s still the safest bet around, isn’t it?)
Ron Brounes
www.ronbrounes.com
