Markets remain volatile and skittish. Why? Our global economy along with our domestic economy remain under the pressure of massive debts and deficits across the sovereign, corporate, and consumer spectrum.
Global governments can not prop economies and markets forever, try as they might. Can 2010 successfully transition from these total government supported and propped markets to a hoped for return to private enterprise with private capital? This week brought us more ups and downs in the markets as the economy overall searches for its footing. We remain a long way from being out of the woods. Pack lightly and lets navigate.
Welcome to our Sense on Cents Week in Review where I provide a streamlined recap of the major economic news and month-to-date market returns.
1. Wholesale Trade declined .8% versus a 1.5% increase last month. This decline will be a factor in revising 4th quarter GDP lower from its initial 5.7% reading.
2. Our international trade deficit surged 10% to $40.2 billion. This unexpected surge was driven by an increase in oil imports. The dramatic increase will also be a factor in revising 4th quarter GDP lower.
3. Jobless claims declined by 43k. A sign of a better labor market ahead, perhaps? Regrettably not. This decline is viewed as a technical development and the end of a backlog. The 4 week average for claims remains stubbornly high at 468k.
4. Retail sales provides a glimmer of light and hope. This report registered a .5% increase with the prior month’s report revised from -.3% to -.1%.
5. Consumer sentiment declined by .7 relative to a month ago. No surprise here. Do you feel better about the economy? I don’t.
The following market statistics are the weekly close (February 12th) versus January’s close and the subsequent month-to-date returns:
$/Yen: 89.94 vs 90.19, -.3%
Euro/Dollar: 1.363 vs 1.386, -1.6%
U.S. Dollar Index: 80.22 vs 79.48, +.9%
Commentary: the overall U.S. Dollar Index hardly budged on the week, while a declining Euro garnered major focus. How will the EU structure a backstop for Greece? That question remains unanswered, but is of tremendous importance as it will likely serve as a precursor for other nations in the EU. The dollar remains a safe haven in the face of these uncertainties.
Oil: $74.05/barrel vs $72.64, +1.9%
Gold: $1092.8/oz. vs $1081.7, +1.0%
Copper: $3.10 vs $3.10, 0.0%
DJ-UBS Commodity Index: 131.0 vs 129.05, +1.5%
Commentary: commodities rebounded strongly on the week. The overall index was up 3.5%, led by copper which rallied close to 7% and is now back to unchanged on the month. Despite the rally on the week, I remain concerned that tighter credit policies in China will serve to cap the performance in this sector.
DJIA: 10,099 vs 10,067, +.3%
Nasdaq: 2183 vs 2147,+1.7%
S&P 500: 1073 vs 1074, 0.0%
MSCI Emerging Mkt Index: 923 vs 940, -1.8%
DJ Global ex U.S.: 188.1 vs 191.9, -2.0%
Commentary: concerns in the international and emerging market equity space remain prevalent. Our domestic markets remain volatile and fragile. Our markets try to grab hold of the appearance of improving economic data. Is that data robust or more appearance than reality? Risks remain high, especially with credit tightening underway in China.
2yr Treasury: .83% vs .82%, +1 basis points or -.01% (rates down, bond prices up)
10yr Treasury: 3.69% vs 3.59%, +10 basis points or +.10%
COY (High Yield ETF): 6.74 vs 6.81 -1.0%
FMY (Mortgage ETF): 18.40 vs 18.62, -1.2%
ITE (Government ETF): 57.78 vs 57.83, -0.1%
NXR (Municipal ETF): 14.22 vs 14.33, -0.8%
Commentary: interest rates inched higher this week with comments by Bernanke indicating he may raise the discount rate “before long” and news from China of higher rates emanating from that country. The trend toward higher rates may be slow but in the face of the massive global debt and with government backstops lessening, I believe private investors will demand higher rates for risks taken.
I reiterate my points highlighted from previous weeks. Risks remain high. Markets are clearly unsettled. What are the risks? Will our economic landscape regain the calm induced by the massive flow of Fed liquidity? The risks are centered in the following areas:
1. A continued weak economy, especially within housing and labor.
2. Washington in disarray. The markets may ultimately like political gridlock, but for now the weakness in Washington is pervasive.
President Obama may win awards for the most air time, but he truly needs to cease and desist with the campaigning and get back to work. His actions and words convey a President and a Presidency focused on polling and political expediency. The markets view that style and approach as both weak and risky.
3. The “thrown the bums out” mentality directed at Congressional incumbents on both sides of the political aisle remains. America increasingly understands Washington is much more part of the problem than the solution. This also unsettles the market.
4. Just what will come from Obama’s plan to rein in proprietary trading and risk on Wall Street? More uncertainty and unsettledness . . . and thus greater risk.
5. When and how will the Fed withdraw stimulus and support for the market? How will that play out? How will it be executed? Are we in a bubble? Can we gently ease the air out of the balloon? More risk.