Weekly Commentary

May 21, 2012

2012-05-21T22:30:09Z

Concerns about the Eurozone and Greece and whether Greece would remain part of the Eurozone remained the hot topic last week. There actually is a new term for it: “Grexit.” There was a run on banks in Greece as people withdrew Euros in case Greece went back to the Drachma, and in Spain, the fourth largest bank needed to be bailed out by the Spanish government. In addition, 16 banks were downgraded by Moody’s, causing big withdrawals by depositors. In our economic news region, manufacturing numbers were mixed, with Empire Manufacturing for the New York area coming in much better than expected (17.09 act. vs 9.00 est.), and a couple hours south, Philadelphia Fed turned negative (-5.8 act. vs 10.0 est.). The FOMC released minutes from the April 25th meeting; they still are steady as she goes, with inflation at or below 2%. The FOMC said the recovery would gradually gain strength, but it is ready to act if the recovery falters.

This week, it will be more of the same, as we wait to see what will happen in Europe, with a holiday-shortened week thrown in. On the economic calendar, we have $99B in treasury supply to auction with 2-, 5- and 7-year notes, several housing numbers (housing is starting to show improvement) and the volatile Durable Goods number.

May 14, 2012

2012-05-15T14:51:11Z

Last week markets mulled over what will happen in Europe now that the elections are over. France will rock the boat as it tries to promote growth versus austerity, but it will need to work with Germany to find a solution. Greece couldn’t elect a ruling party, and the anti-austerity parties seem to have the momentum. That being the case, a new election will most likely take place next month, and talk of Greece leaving the Euro-zone is gaining momentum again. Back stateside, there wasn’t much economic news other than NFIB Small Business Optimism getting back to its high since the recession started, at 94.5; that is, until JP Morgan announced $2BB in trading losses. The bank can suffer the loss, but it brings back concerns of banks taking on risk and many bank critics are calling for more regulation.

This week, Europe will continue to be front and center and the flight to quality is still on, as the treasury yield curve below shows. In economic news, we will get regional manufacturing numbers, with Empire Manufacturing for the New York area and Philadelphia Fed, and also Retail Sales to see how the consumer is spending. The big news will be Wednesday, with the release of the April 25th FOMC minutes, where markets will be looking for any discussion on possible easing and, if there is any, the options that might be used.

			Expected		Previous
5/14	Monday
5/15	Tuesday	CPI (Apr)	0.0%	vs	+0.3%
		Core CPI (Apr)	+0.2%	vs	+0.2%
		Empire Manufacturing (May)	9.25	vs	6.56
		Retail Sales (Apr)	+0.1%	vs	+0.8%
		Retail Sales Ex Autos (Apr)	+0.2%	vs	+0.8%
		Business Inventories (Mar)	+0.4%	vs	+0.6%
5/16	Wednesday	Housing Starts (Apr)	685k	vs	654k
		Building Starts (Apr)	730k	vs	747k
		Industrial Production (Apr)	+0.6%	vs	0.0%
		Capacity Utilization (Apr)	79.0%	vs	78.6%
		Minutes Apr 25 FOMC Meeting
5/17	Thursday	Philadelphia Fed (May)	10.0	vs	8,5
		Leading Indicators (Apr)	+0.1%	vs	+0.3%
		Jobless Claims (May 12)	365k	vs	367k
5/18	Friday

Treasury Curve
Maturity	Yield 5/14/12	Monday 5/7/12
1-Year	0.17	0.17
2-Year	0.26	0.26
5-Year	0.71	0.78
10-Year	1.78	1.87
30-Year	2.94	3.07

	5/11/12	+/-	7:00 A.M.	+/-
Dow	12820.60	-34.44	12693.76	-126.84
MSFT	31.16		30.80	-0.36
BA	73.56		72.60	-0.96

May 7, 2012

2012-05-08T16:17:50Z

Economic numbers last week continued to show slowing economies, both in the U.S. and in Europe. ISM Non-Manufacturing, which makes up approximately 90% of our economy, came in lower than anticipated(53.5 act. vs 55.3 est.), as did Euro-region services and manufacturing (46.9 act. vs 47.4 est.). At least ours is still above 50m, which is expansionary, vs. Europe’s, which is contracting. Friday’s employment numbers also disappointed (115k act. vs 160k est.), but unemployment came in better than expected (+8.1% act. vs +8.2% est.), which was attributed mainly to people having left the workforce. Over in the Euro-region, the unemployment rate increased from +10.8% to +10.9%.

Over the weekend, the big news was elections in France and Greece; France elected Francois Hollande, who vows to fix the country’s economic programs with government stimulus (more debt?,) and in Greece, no party got the majority, so gridlock is expected, which puts their bailout in jeopardy. On the home front, we get NFIB Small Business Optimism for a read on small businesses’ take on the economy. Even though the number is expected to be up, we still haven’t gotten above 94.6, which is a reading back to December 2007 when the last recession started. We also have three treasury auctions to place. All eyes will be on developments in Europe.

			Expected		Previous
5/7	Monday	Consumer Credit (Mar)	$9.800B	vs	$8.735B
5/8	Tuesday	NFIB Small Business (Apr)	93.0	vs	92.5
		3-Year Treasury Note Auction $32B
5/9	Wednesday	Wholesale Inventories (Mar)	+0.6%	vs	+0.9%
		10-Year Treasury Note Auction $24B
5/10	Thursday	Trade Balance (Mar)	-$50.0B	vs	-$46.0B
		30-Year Treasury Bond Auction $16B
		Jobless Claims (May 5)	369k	vs	365k
5/11	Friday	PPI (Apr)	0.0%	vs	0.0%
		Core PPI (Apr)	+0.2%	vs	+0.3%
		U of Michigan Confidence (Apr)	76.0	vs	76.4

Treasury Curve

Maturity	Yield 5/7/12	Monday 4/30/12
1-Year	0.17	0.17
2-Year	0.26	0.25
5-Year	0.78	0.81
10-Year	1.87	1.92
30-Year	3.07	3.10

	5/4/12	+/-	7:00 A.M.	+/-
Dow	13038.27	-168.32	13006.08	-32.19
MSFT	30.98		30.66	-0.32
BA	75.84		75.79	-0.05

April 30, 2012

2012-04-30T17:40:51Z

Europe continued to be a concern last week, and U.S. economic numbers were mixed (sounds like a broken record). Spain continued to be front and center, as its unemployment rate rose to +24.4% and S&P lowered its rating two notches to BBB+. At home, Durable Goods, which can be a volatile number, dropped more than expected (-4.2% act. vs -1.7% est.), and our first look at 1st Quarter GDP (+2.2% act. vs +2.5% est.) showed the economy slowing more than anticipated and off the 3% we saw in the 4th Quarter. The FOMC also met last week and stated that the economy is “expanding moderately” and inflation expectations “remained stable”; in the follow-up press conference, Bernanke said the fed remains prepared to take additional action if needed to boost the economy.

This week we will continue to watch Europe: both Britain and Spain have entered into a recession, and France and Greece have elections on Sunday, May 6th, where it doesn’t look like the predicted outcomes will help the recovery. In U.S. news, the big number will be Friday’s employment/unemployment numbers, and several economists have lowered their payroll numbers to around 120k. We also get both ISM numbers for a national look at the economy, and both are expected to drop slightly but still be in expansion territory.

			Expected		Previous
4/30	Monday	Personal Income (Mar)	+0.3%	vs	+0.2%
		Personal Spending (Mar)	+0.4%	vs	+0.8%
		Core PCE (Mar)	+0.2%	vs	+0.1%
		Chicago Purchasing Mgr. (Apr)	60.0	vs	62.2
5/1	Tuesday	Construction Spending (Mar)	+0.5%	vs	-1.1%
		ISM Manufacturing (Apr)	53.0	vs	53.4
		ISM Prices Paid (Apr)	59.0	vs	61.0
		1-Year Treasury Bill Auction $26B
5/2	Wednesday	ADP Employment (Apr)	170k	vs	209k
		Factory Orders (Mar)	-1.6%	vs	+1.3%
5/3	Thursday	Nonfarm Productivity (1^st Qtr.)	-0.5%	vs	+0.9%
		Unit Labor Costs (1^st Qtr.)	+2.7%	vs	+2.8%
		ISM Non-Manufacturing (Apr)	55.4	vs	56.0
		Jobless Claims (Apr 28)	378k	vs	388k
5/4	Friday	Nonfarm Payrolls (Apr)	164k	vs	120k
		Private Payrolls (Apr)	169k	vs	121k
		Unemployment Rate (Apr)	+8.2%	vs	+8.2%
		Avg. Hourly Earnings (Apr)	+0.2%	vs	+0.2%
		Avg. Weekly Hours (Apr)	34.5	vs	34.5

Treasury Curve

Maturity	Yield 4/30/12	Monday 4/23/12
1-Year	0.17	0.16
2-Year	0.25	0.26
5-Year	0.81	0.82
10-Year	1.92	1.93
30-Year	3.10	3.08

	4/27/12	+/-	7:00 A.M.	+/-
Dow	13228.31	+23.69	13194.56	-33.75
MSFT	31.98		31.99	+0.01
BA	77.27		76.16	-1.11

April 23, 2012

2012-04-24T16:32:40Z

Europe continued to be a concern last week, and U.S. economic numbers were mixed. On the home front, Retail Sales was the only real positive surprise (+0.8% act. vs +0.3% est.), with regional manufacturing numbers Empire Manufacturing (6.56 act. vs 18.00 est.) and Philadelphia Fed (8.5 act. vs 12.0 est.) disappointing, along with Housing Starts (654k act. vs 705k est.) and Existing Home Sales (4480k act. vs 4610k est.). In Europe, Spain was able to auction the needed securities without too much problem, although at higher rates, and in France, the elections produced a run-off on May 6 between Sarkozy and anti-euro Hollande, with Hollande winning the largest percentage. If Hollande were to win, it could be bad for France’s debt and cause a change in other upcoming European elections.

This week, the big event will be Wednesday’s FOMC announcement and press conference, where markets are waiting to hear anything about QE3 or what will or won’t happen when Operation Twist ends in June. No rate changes are expected, and a continuation of low rates through 2014 is anticipated. In economic news, we get the volatile Durable Goods on Wednesday, we’ll be watching Jobless Claims on Thursday, which have been climbing of late, and we get our first look at 1st Quarter GDP on Friday.

			Expected		Previous
4/23	Monday
4/24	Tuesday	Consumer Confidence (Apr)	69.6	vs	70.2
		New Home Sales (Mar)	320k	vs	313k
		FOMC Meeting- Day one of two
4/25	Wednesday	Durable Goods Orders (Mar)	-1.7%	vs	+2.2%
		Durable Goods Ex-Transportation(Mar)	+0.5%	vs	717k
		FOMC Rate Decision 11:15 (Mar)	0.00-.25%	vs	0.00-.25%
4/26	Thursday	Pending Home Sales (Apr)	1.0%	vs	-0.5%
		Jobless Claims (Apr 21)	375k	vs	386k
4/27	Friday	Employment Cost Index (1st Qtr.)	+0.5%	vs	+0.4%
		GDP (1st Qtr. 1st Look)	+2.5%	vs	+3.0%
		GDP Price Index (1st Qtr. 1st Look)	+2.1%	vs	+0.9%
		Personal Consumption (1st Qtr. 1st Look)	+2.3%	vs	+2.1%
		U of Michigan Confidence (Apr)	75.7	vs	75.7

Treasury Curve

Maturity	Yield 4/23/12	Monday 4/16/12
1-Year	0.16	0.17
2-Year	0.26	0.27
5-Year	0.82	0.84
10-Year	1.93	1.97
30-Year	3.08	3.12

	4/20/12	+/-	7:00 A.M.	+/-
Dow	13029.26	+65.16	12872.52	-156.74
MSFT	32.42		32.19	-0.23
BA	73.55		72.60	-0.95

April 16, 2012

2012-04-16T18:05:25Z

Economic concerns were still headlines last week, pushing stocks lower and bond yields down. Spain’s problems continued to hurt the economic outlook for a European recovery, and China announced 1st Quarter GDP slowed to +8.1% from +8.9%. We would love to have that kind of GDP number, but in China, that’s bad news. Also Jobless Claims last week rose to 380k and, after the poor March nonfarm payroll number, markets are concerned that the labor markets recovery is waning. Since mid-February, the initial jobless claims number has been reported below 360k and as low as 348k, but after revisions it hasn’t cleared 360k yet.

This week Spain will continue to be headline news, as it has two auctions with a bill and a 10-year note auction, and we’ll see how receptive markets are to buying that paper. Also in Europe, France has a presidential election on Sunday and President Sarkozy’s chances of re-election are in doubt. The front runners’ policies won’t be good for French businesses or the economy, and France is too big for Germany to bail out. Back stateside, we had Retail Sales this morning coming in much better than expected (+0.8% act. vs +0.3% est.), but Empire Manufacturing coming in much worse (6.56 act. vs 18.00 est.). We also get several housing numbers, and we will be watching jobless claims for any hint of improvement. One error correction from last week is that the next FOMC meeting is next week, not this week.

			Expected		Previous
4/16	Monday	Empire Manufacturing (Apr)	18.00	vs	20.21
		Retail Sales (Mar)	+0.3%	vs	+1.1%
		Retail Sales Ex- Autos (Mar)	+0.6%	vs	+0.9%
		Business Inventories (Feb)	+0.6%	vs	+0.7%
4/17	Tuesday	Housing Starts (Mar)	705k	vs	698k
		Building Permits	710k	vs	717k
		Industrial Productions (Mar)	+0.3%	vs	0.0%
		Capacity Utilization (Mar)	78.5%	vs	78.7%
4/18	Wednesday
4/19	Thursday	Philadelphia Fed (Apr)	12.0%	vs	12.5
		Existing Sales (Mar)	4620k	vs	4590k
		Leading Indicators (Mar)	+0.2%	vs	+0.7%
		Jobless Claims (Apr 14)	370k	vs	380k
4/20	Friday

Treasury Curve

Maturity	Yield 4/16/12	Monday 4/9/12
1-Year	0.17	0.18
2-Year	0.27	0.32
5-Year	0.84	0.89
10-Year	1.97	2.03
30-Year	3.12	3.19

	4/13/12	+/-	7:00 A.M.	+/-
Dow	12849.59	-136.99	12944.42	+94.83
MSFT	30.81		30.97	+0.16
BA	72.92		72.82	-0.10

April 9. 2012

2012-04-09T17:25:51Z

A little dose of reality came back into the markets last week, as the economic news and numbers said we aren’t out of the woods yet. What started the week off was the FOMC minutes, which said the fed saw labor markets improving and, unless the situation changes and economic growth slows, no need for more stimulus. Keep in mind, though, Bernanke has been on the speech circuit lately saying the labor market and economy are fragile and numbers of late could be misleading. Over in Europe (I thought Europe was all fixed), Spain was back in the headlines, as it had a bond auction that went poorly and markets are concerned about its ability to meet budget cuts, especially with a 23.6% unemployment rate. Finally, on Friday, the Nonfarm Payroll number (120k act. vs 205k est.) was the smallest increase in five months and brought markets back to believing Bernanke’s warnings.

This week we have 3- and 10-year notes and a 30-year bond to auction and economic numbers every day but today. Wednesday’s Beige Book is important for a region-by-region look at the economy, and then we get inflation numbers PPI Thursday and CPI Friday. After last Friday’s employment numbers, markets are waiting for the next week’s FOMC meeting to see what the fed says about future plans; more than one month of numbers is needed for the fed to really act, but it could give some indication if the poor employment numbers continue.

			Expected		Previous
4/9	Monday
4/10	Tuesday	NFIB Small Business Optimism (Mar)	95.0	vs	94.3
		Wholesale Inventories (Feb)	+0.5%	vs	+0.4%
		3-Year Treasury Note Auction $32B
4/11	Wednesday	Fed’s Beige Book
		10-Year Treasury Note Auction $21B
4/12	Thursday	PPI (Mar)	+0.3%	vs	+0.4%
		Core PPI (Mar)	+0.2%	vs	+0.2%
		Trade Balance (Feb)	-$52.0B	vs	-$52.6B
		Jobless Claims (Apr 7)	355k	vs	357k
		30-Year Treasury Bond Auction $13B
4/13	Friday	CPI (Mar)	+0.3%	vs	+0.4%
		Core PPI (Mar)	+0.2%	vs	+0.1%
		U of Michigan Confidence (Mar)	76.2	vs	76.2

Treasury Curve

Maturity	Yield 4/9/12	Monday 4/2/12
1-Year	0.18	0.17
2-Year	0.32	0.33
5-Year	0.89	1.03
10-Year	2.03	2.20
30-Year	3.19	3.33

	4/5/12	+/-	7:00 A.M.	+/-
Dow	13060.14	-14.61	12912.48	-147.66
MSFT	31.52		31.00	-0.52
BA	73.59		72.55	-1.04

April 2, 2012

2012-04-02T17:54:34Z

The economic numbers we got last week continued to show the economy improving, but not at a pace that gets us back on track quickly. Durable Goods didn’t come in as well as expected (+2.2% act. vs +3.0% exp.), but since January was -4.0%, it was an improvement in the right direction, although Durable Goods can be very volatile month to month. Our final look at 4th Quarter GDP came as expected, at +3.0%, but Chicago Purchasing Mgr. fell short of expectations (62.2 act. vs 63.0 est.). We did have Bernanke speaking several times, and he seems to be convinced the economic numbers aren’t accurate, especially the jobs market; he still is pushing the potential for more fed policy accommodation.

This week the big news will be the ISM numbers today and Wednesday, the FOMC minutes from the March 13th meeting on Tuesday, and Friday’s employment /unemployment numbers. Our economy is slowly improving and with Greece out of the headlines for the moment (they have elections shortly, as does France, and my bet is they will be in the headlines again soon), markets will remain in this range for the time being.

			Expected		Previous
4/2	Monday	Construction Spending (Feb)	+0.6%	vs	-0.1%
		ISM Manufacturing (Mar)	53.0	vs	52.4
		ISM Prices Paid (Mar)	63.0	vs	61.5
4/3	Tuesday	Factory Orders (Feb)	+1.5%	vs	-1.0%
		FOMC Minutes March 13^th Meeting
		1-Year Treasury Bill Auction $26B
4/4	Wednesday	ADP Employment Change (Mar)	206k	vs	216k
		ISM Non-Manufacturing (Mar)	56.8	vs	57.3
4/5	Thursday	Challenger Job Cuts (Mar)		vs	+2.0%
		Jobless Claims (Mar 31)	355k	vs	359k
4/6	Friday	Nonfarm Payrolls (Mar)	205k	vs	227k
		Private Payrolls (Mar)	220k	vs	233k
		Unemployment Rate (Mar)	+8.3%	vs	+8.3%
		Avg. Hourly Earnings(Mar)	+0.2%	vs	+0.1%
		Avg. Weekly Hours (Mar)	34.5	vs	34.5
		Consumer Credit (Feb)	$12.000B	vs	$17.776B
		Early Close 9:00 P.S.T. for Good Friday

Treasury Curve

Maturity	Yield 4/2/12	Monday 3/26/12
1-Year	0.17	0.17
2-Year	0.33	0.36
5-Year	1.03	1.10
10-Year	2.20	2.27
30-Year	3.33	3.35

	3/30/12	+/-	7:00 A.M.	+/-
Dow	13212.04	+66.22	13184.57	+103.84
MSFT	32.25		32.01	-0.24
BA	74.37		74.20	-0.17

March 26, 2012

2012-03-26T19:26:30Z

There wasn’t a lot of U.S. economic news last week, but there were some numbers out of Europe and China that halted the treasury’s slide. In the U.S we got housing numbers, which were mixed, with Housing Starts (698k act. vs 700k est.), Building Permits (717k act. vs 686k est.), and New Home Sales (313k act. vs 325k est.), but it was the overseas numbers that caused the most concern. Manufacturing slipped in both Europe (47.7) and China (48.1), where a reading above 50 indicates expansion, as both areas saw contraction in manufacturing. With the U.S. economy starting to pick up, it’s not helping global confidence to have Europe and China slipping.

This week we have treasury supply, with $99B in 2-, 5- and 7-year notes to place, and we get some economic numbers every day. The big numbers will be the volatile Durable Goods on Wednesday and our final look at 4th Quarter GDP on Thursday. Bernanke spoke this morning and said that, despite three months of strong hiring, the jobs market remains weak and it’s unclear if the pace of job gains can be sustained. Also, continued accommodative monetary policy will be needed to make further progress.

			Expected		Previous
3/26	Monday	Pending Home Sales (Feb)	+1.0%	vs	+2.0%
3/27	Tuesday	Consumer Confidence (Mar)	70.1	vs	70.8
		2-Year Treasury Auction $35B
3/28	Wednesday	Durable Goods Orders (Feb)	+3.0%	vs	-4.0%
		Durable Ex Transportation (Feb)	+1.7%	vs	-3.2%
		5-Year Treasury Auction $35B
3/29	Thursday	GDP (4th Qtr. Final)	+3.0%	vs	+3.0%
		GDP Price Index (4th Qtr. Final)	+0.9%	vs	+0.9%
		Personal Consumption (4th Qtr. Final)	+2.1%	vs	+2.1%
		7-Year Treasury Auction $29B
		Jobless Claims (Mar 24)	350k	vs	3448k
3/30	Friday	Personal Income (Feb)	+0.4%	vs	+0.3%
		Personal Spending (Feb)	+0.6%	vs	+0.2%
		Core PCE (Feb)	+0.1%	vs	+0.2%
		Chicago Purchasing Mgr. (Mar)	63.0	vs	64.0
		U of Michigan Confidence (Mar)	74.6	vs	74.3

Treasury Curve

Maturity	Yield 3/26/12	Monday 3/19/12
1-Year	0.17	0.19
2-Year	0.36	0.35
5-Year	1.10	1.10
10-Year	2.27	2.27
30-Year	3.35	3.38

	3/23/12	+/-	7:00 A.M.	+/-
Dow	13080.73	+34.59	13184.57	+103.84
MSFT	32.01		32.37	+0.36
BA	73.97		74.82	+0.85

March 20, 2012

2012-03-20T15:30:40Z

The economic news last week and comments from the FOMC were mostly upbeat. The FOMC said “the economy has been expanding moderately,” “labor market conditions have improved further,” and “the unemployment rate has declined notably in recent months but remains elevated.“ The fed did leave the “exceptionally low rates through late 2014” language in the statement, but with the upbeat outlook toward the economy, the markets took that as meaning QE3 is off the table for the time being and pushed rates higher, prices lower, as the table below shows. For economic numbers, we got NFIB Small Business Optimism (94.3 Feb vs 93.9 Jan), Retail Sales (+1.1% Feb vs +0.4% Jan), and manufacturing numbers Empire (20.21 Mar vs 19.53 Feb) and Philadelphia Fed (12.5 Mar vs 10.2 Feb), all pointing to an improving economy. The only negative numbers were Industrial Production, which remained flat, and U of Michigan Confidence (74.3 vs 75.3).

This week is very quiet on the economic news and treasury supply front. In numbers, it’s a big housing-related numbers week, and markets are waiting to see if treasury yields continue to drop or if we have found a support level for the time being. Tomorrow is the day Greece makes its debt payments of 14.5B euros ($19.1B), and markets are still concerned that Portugal might be the next Greece.

			Expected		Previous
3/19	Monday	NAHB Housing Market Index (Mar)	30	vs	29
3/20	Tuesday	Housing Starts (Feb)	700k	vs	699k
		Building Permits (Feb)	686k	vs	676k
3/21	Wednesday	Existing Home Sales (Feb)	4610k	vs	4570k
3/22	Thursday	House Price Index (Jan)	+0.3%	vs	+0.7%
		Leading Indicators (Feb)	+0.6%	vs	+0.4%
		Jobless Claims (Mar 17)	351k	vs	351k
3/23	Friday	New Home Sales (Feb)	325k	vs	321k

Treasury Curve

Maturity	Yield 3/12/12	Monday 3/12/12
1-Year	0.19	0.17
2-Year	0.35	0.31
5-Year	1.10	0.88
10-Year	2.27	2.00
30-Year	3.38	3.15

	3/16/12	+/-	7:00 A.M.	+/-
Dow	13232.62	-20.14	13221.50	-11.12
MSFT	32.60		32.52	-0.08
BA	75.20		75.27	+0.07