Monthly Archives: November 2013

Market Insights 11/27/2013

Stocks Weigh Gains After Large Serving of Domestic Data

U.S. stocks posted modest gains ahead of tomorrow’s Thanksgiving holiday, on which all domestic markets will be closed. Equities found support from a profusion of mainly upbeat domestic reports, including an unexpected drop in jobless claims and a larger-than-forecasted upward revision to consumer sentiment.

Treasuries were mostly lower following the domestic data, which also included a smaller-than-expected deceleration in regional manufacturing growth, and a fourth-straight month of improvement for Leading Indicators.

The Dow Jones Industrial Average (DJIA) was 25 points (0.2%) higher at 16,097-

The S&P 500 Index increased 4 points (0.2%) to 1,807-

The Nasdaq Composite gained 27 points (0.7%) to 4,045-

In light volume, 522 million shares were traded on the NYSE, and 1.5 billion shares changed hands on the Nasdaq. WTI crude oil fell $1.38 to $92.30 per barrel, wholesale gasoline gained $0.01 to $2.69 per gallon, and the Bloomberg gold spot price declined $4.44 to $1,238.41 per ounce.

Durable goods orders and jobless claims fall, while consumer sentiment revised higher

Durable goods orders dropped 2.0% month-over-month in October, inline with the estimate expected by economists surveyed by Bloomberg, but September’s 3.7% rise was revised to a 4.1% gain. The report was disappointing, although it may be discounted somewhat by traders, as the report tends to be volatile on a month-to-month basis, and the report covered the period during which the government was shutdown.

Most experts still feel economic data is still a bit lumpy from the government shutdown, but overall the data is starting to clear and is continuing to reveal a modest growth story, showing neither recession nor overheating growth. As such, the Fed is unlikely to move quickly to tighten monetary policy, although cutting back on asset purchases is likely in 2014 and as the Fed begins to prepare the market for this move, the market could encounter increased volatility. Although most analysts remain optimistic on U.S. stocks, there is the risk of a pullback in the near term should sentiment conditions continue to be elevated.

Meanwhile, weekly initial jobless claims declined by 10,000 to 316,000 last week, below the 330,000 level that economists expected, as the prior week’s figure was upwardly revised by 3,000 to 326,000. Moreover, the four-week moving average, considered a smoother look at the trend in claims, fell by 7,500 to 331,750, while continuing claims dropped by 91,000 to 2,776,000, south of the forecast of economists, which called for a level of 2,850,000.

Also, the final University of Michigan Consumer Sentiment Index showed confidence was revised higher than expected to 75.1 in November from the preliminary reading of 72.0, and compared to the 73.1 estimate of economists surveyed. The November figure was also an improvement from October’s 73.2 reading but was below July’s six–year high of 85.1. Both the economic conditions and outlook components of the survey were adjusted higher. On inflation, the 1-year expectation was revised to 2.9% from 3.1%, compared to October’s 3.0% reading, while the 5-year inflation outlook remained at 2.9%, from the 2.8% figure posted in the previous month.

Treasuries were mostly lower following the data, with the yield on the 2-year note nearly unchanged at 0.29%, while the yield on the 10-year note rose 3 bps to 2.74%, and the 30-year bond rate increased 1 bp to 3.81%.

Europe higher, Asia mixed

The European equity markets traded to the upside, with traders digesting the mostly upbeat plethora of economic data in the U.S., while trading may have been muted ahead of the U.S. Thanksgiving holiday tomorrow. Meanwhile, Germany’s GfK Consumer Confidence Index unexpectedly improved to help buoy sentiment, rising to 7.4 for December—the highest reading since August 2007—from 7.1 in November, where economists expected the index to remain. In other economic news, U.K. 3Q GDP was left unrevised at a rate of expansion of 0.8% quarter-over-quarter, as expected, while French consumer confidence surprisingly declined for November and Spanish retail sales fell in October.

Stocks in Asia finished mixed in subdued action ahead of tomorrow’s holiday in the U.S. Japan’s Nikkei 225 Index finished lower, though losses for the index were limited by some weakness in the yen versus the U.S. dollar. Stocks in China rose amid optimism about the government’s reform measures in the financial sector and a report suggesting the nation will build a new railway linking Hungary and Serbia, which boosted train-related stocks.

Chinese equities showed some resiliency in the face of rising political tensions pertaining to the nation’s recent establishment of a new air defense zone in the East China Sea. Australia’s S&P/ASX 200 Index declined and India’s S&P BSE Sensex 30 Index finished flat, while South Korea’s Kospi Index advanced shrugging off a disappointing report on the outlook for the nation’s manufacturing sector activity. Finally, Thailand’s SET Index advanced despite continued anti-government protests in the region, after the Bank of Thailand unexpectedly cut its benchmark interest rate by 25 bps to 2.25%.

Market Insight 11/25/13

Shortened Week Begins Slowly

U.S. equities finished mixed and nearly unchanged with the Dow and Nasdaq able to hold onto the modest of gains, while the broader S&P 500 inched lower. Stocks got an early boost from optimism regarding a preliminary deal between Iran and world leaders, including the U.S., regarding the curtailment of its nuclear activities. Disappointing U.S. pending home sales and regional manufacturing reports tempered the mood, and the markets lost steam in the final hour of trading.

Treasuries finished nearly unchanged, crude oil prices pared a majority of their losses that came in the wake of the Iranian deal, while gold finish higher and the U.S. dollar gained ground.\

The Dow Jones Industrial Average rose 8 points (0.1%) at 16,073

The S&P 500 Index lost 2 points (0.1%) to 1,802

The Nasdaq Composite increased 3 points (0.1%) to 3,995

In moderately light volume, 622 million shares were traded on the NYSE, and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil fell $0.75 to $94.09 per barrel, wholesale gasoline was $0.04 lower at $2.71 per gallon, while the gold spot price rose $6.46 to $1,250.26 per ounce.

Pending home sales unexpectedly decline and regional manufacturing slows

Pending home sales surprisingly declined in October for a fifth-straight month, decreasing 0.6% month-over-month (m/m) compared to the 1.0% increase that economists surveyed by Bloomberg had projected, while the 5.6% drop registered in September was revised to a 4.6% decrease. Compared to last year, sales were down 2.2% in October, versus the 1.0% decline that was forecasted, and compared to the 2.0% gain posted in September, revised from an initially-reported 1.1% rise. Pending home sales reflect contract signings and are used as a gauge of the pipeline of existing home sales, which declined for the second-straight month in October.

Treasuries finished nearly unchanged, as the yields on the 2-year and 10-year notes, as well as the 30-year bond, were flat at 0.28%, 2.74% and 3.83%, respectively.

Many research reports show consumer confidence is rebounding, leading many experts to believe there will be little actual impact of the government shutdown. Additionally, there appear to be some tailwinds developing for consumer spending. The so-called “wealth affect” could bolster spending as stocks have risen impressively over the past few years, while home prices have also posted nice gains.

The labor market continues to improve, albeit slowly, and the recent drop in fuel prices should put more money in consumers’ pockets. Now, that the growing cries that we’ve reached sentiment or valuation extremes worthy of past market tops, or a bubble at its bursting point, seem a bit premature in most experts eyes.

Other items set for release tomorrow include: Consumer Confidence, with economists expecting a slight increase in the index to a level of 72.9 during November from the 71.2 posted on October, as well as the Richmond Fed Manufacturing Index, forecasted to show manufacturing activity in the mid-Atlantic region accelerated modestly in November reflected in a reading of 4, up from the 1 posted in the month prior.

Europe and Asia higher on Iran nuclear deal

The European equity markets finished mostly higher, with sentiment being buoyed by a preliminary agreement between Iran and six world leaders, including the U.S., to curb its nuclear development activities in exchange for reduced international sanctions. Oil prices were lower following the Iran nuclear deal, which boosted airline companies and other travel-related stocks in the region. In economic news in the region, French manufacturing confidence came in above expectations for November, while the nation’s production outlook indicator for this month declined more than expected.

Stocks in Asia finished mostly higher on the heels of the record closing highs in the U.S. on Friday, while an agreement between world leaders and Iran to curtail its nuclear activities bolstered sentiment. Japan’s Nikkei 225 Index was a standout winner, rising to a six month high, as the yen weakened to the lowest level since May versus the U.S. dollar, boosting export-related stocks. Elsewhere, Australia’s S&P/ASX 200 Index, South Korea’s Kospi Index, and India’s S&P BSE Sensex 30 Index all advanced. However, China’s Shanghai Composite Index and the Hong Kong Hang Seng Index dipped, as sentiment in China was hamstrung by China introducing a new air defense zone in the East China Sea, exacerbating a territorial dispute with Japan.

Market Insights 11/21/13

Dow 16,000

US equity markets snapped their recent losing streak, as stocks closed the trading session nicely higher, after some mixed domestic reports that may have helped ease investors concerns of the Federal Reserve’s possible reduction in its stimulus program. Weekly jobless claims fell more than expected and an early read on manufacturing activity topped estimates, while producer prices remained subdued and regional manufacturing growth slowed more than expected.

Treasuries were mostly higher following the data. Crude oil prices were higher and gold was slightly lower, while the US dollar was nearly unchanged.

The Dow Jones Industrial Average (DJIA) gained 109 points (0.7%) to 16,010-

The S&P 500 Index added 14 points (0.8%) to 1,796-

The Nasdaq Composite increased 48 points (1.2%) to 3,969-

In moderate volume, 669 million shares were traded on the NYSE, and 1.7 billion shares changed hands on the Nasdaq. WTI crude oil increased $1.59 to $95.44 per barrel, wholesale gasoline gained $0.08 to $2.74 per gallon, and the Bloomberg gold spot price lost $2.15 to $1,242.18 per ounce.

Jobless claims come in below expectations, while producer prices remain contained

Weekly initial jobless claims fell by 21,000 to 323,000 last week, below the 335,000 level that economists had expected, as the prior week’s figure was upwardly revised by 5,000 to 344,000. Moreover, the four-week moving average, considered a smoother look at the trend in claims, fell by 6,750 to 338,500, while continuing claims rose by 66,000 to 2,876,000, north of the forecast of economists, which called for a level of 2,870,000.

The Producer Price Index (PPI) showed a 0.2% decline month-over-month in prices at the wholesale level in October, matching the drop expected by economists, while September’s 0.1% decrease was unrevised. The core rate, which excludes food and energy, was up 0.2% m/m, above forecasts of a 0.1% gain, and September’s 0.1% rise was unadjusted.

Treasuries were mostly higher following the data, as the yield on the 2-year note was nearly unchanged at 0.27%, the yield on the 10-year note declined 1 basis point (bp) to 2.79%, while the 30-year bond rate decreased 2 bps to 3.90%.

Tomorrow’s economic calendar will yield the Kansas City Fed Manufacturing Index, with economists projecting a reading of 6 for November which is unchanged from October’s figure, as reading of zero is the demarcation point between expansion and contraction.

European stocks mixed, Asia mostly lower

The European equity markets finished mixed, with traders grappling with some disappointing Eurozone economic data and a softer-than-expected Chinese manufacturing report. Yesterday’s minutes from the U.S. Federal Reserve’s October meeting that suggested a potential deceleration in its asset purchases in the coming months also hurt positive sentiment. The Eurozone PMI Composite Index—a gauge of activity in both the manufacturing and services sectors—unexpectedly declined, falling to 51.5 in November, from 51.9 in October, and compared to the improvement to 52.0 that economists had anticipated, though a reading above 50 still denotes growth in business activity in the region. The European Central Bank may deploy further measures to try to stem decelerating inflation and slowing economic growth in the region, helping limit the downside pressure on the markets in today’s action.

Stocks in Asia finished mostly to the downside, on the heels of yesterday’s U.S. Fed minutes that suggested a possible beginning of the reduction of its asset purchases in its next few meetings, pressuring emerging market stocks, with Indian equities dropping sharply.

China’s Shanghai Composite Index finished flat and the Hong Kong Hang Seng Index declined. However, Japanese stocks rallied, as the Bank of Japan maintained its monetary policy stance and the yen dropped to a four-month low versus the U.S. dollar, per Bloomberg, amid the aforementioned possibility of Fed asset purchase tapering, helping buoy export-related stocks. Finally, South Korea’s Kospi Index fell, as the weakness in the yen dampened the outlook for the nation’s export business, and Australia’s S&P/ASX 200 Index was lower.

Federal Reserve Weighs Slowing Bond Buys

Federal Reserve officials considered ending asset purchases, according to minutes from the October meeting released Wednesday. For the first time this clearly suggested the central bank is looking for ways to exit or slow the controversial program in fairly short order.

By a 9-to-1 vote, the Fed on Oct. 30 continued the $85 billion-per-month asset-purchase program, otherwise known as QE3, and made little changes to the language in the statement.

Minutes from the Oct. 29-30 meeting showed that officials considered reducing the size of the asset-purchase program even “before an unambiguous further improvement in the labor-market outlook was apparent. If economic conditions warranted, the committee could decide to slow the pace of purchases at one of its next few meetings.

The view reflected in the minutes was apparent in addresses over the last 24 hours from Federal Reserve Chairman Ben Bernanke and St. Louis Fed President James Bullard, the latter of whom said a December reduction in bond purchases was “on the table.”

FMOC participants generally “expressed reservation” about a simple mechanical rule to adjust the pace of asset purchases to a single variable such as the unemployment rate or payroll employment. “Some” participants said it might be better to have an even simpler plan, to announce a total size of remaining purchases or a timetable for winding down the program.

The Fed also was eager to clarify or strengthen the forward guidance for rates. “Several” said extra qualitative information could be provided after the 6.5% unemployment rate threshold was actually reached, which by the Fed’s own projections could come next year.

Some members wanted to reduce the 6.5% unemployment rate threshold, and a “few” wanted to add that the federal funds rate wouldn’t be raised as long as inflation was projected to run below a given level.

The Fed also discussed how to taper: a “number” said making roughly equal reductions in Treasurys and mortgage-backed securities would be appropriate and easy to communicate, “some others” said Treasury securities should be more aggressively reduced to signal an intention to support the mortgage market, while one participant said trimming MBS first would reduce the potential for distortions in credit allocation.

One other noteworthy event is that the Fed considered whether to discuss the effect of the government shutdown. They opted not to, so as not to “overemphasize the role of the shutdown in the committee’s policy deliberations.”

Is The Bull Dead ??

Anxiety is starting to rise among investors who worry the end of the bull market is nigh, or at least that a sobering correction is in the cards. What is an indexed investor to do now?

There certainly seem to be ample signs that the bull, which began its run in March 2009, might be getting giddy enough to pass out. IPOs are coming thick and fast, suggesting that sellers of stock judge the getting to be especially good — implying that it may not be so good down the road. Not to mention that some of those IPOs are being offered by profitless companies.
Then there are the corporate insiders, who are selling a lot more shares than they’re buying. And mom and pop investors are coming back into the market, which freaks out those who think the arrival of “dumb money” means a downturn is around the corner.

Looming in the background is the inevitability that the Fed will slow the fire hose of liquidity into the economy, which undoubtedly has added fuel to the rally. Earlier hints that easy money was about to taper off and interest rates start rising sent the market reeling. So, the worrywarts claim to be realistic instead of neurotic and continue to make odds on when the Fed will turn down the spigot.

Faced with these ominous signals — or, rather, the ominous interpretations of certain developments — there are different ways to take an index approach to investing, but the following suggestions apply to everyone.

1. Don’t panic. Just because the worry chorus is singing louder is no reason to change, or even doubt, your game plan. If it has been working for you, keep it going. Tie yourself to the mast, if you have to, in resistance to the market-timing urge. Disaster happens far less often than predicted, so wait until it’s really here.

2. Keep your perspective. Some doomsayers proclaim the bull market is getting old enough to die. But in truth, this run is still several months short of the briefest bull market in the past 50 years, and not even half as long as the most extended.

3. Keep on keeping your perspective. The U.S. economy is recovering, albeit slowly, and the rest of the world seems to be limping a little less painfully. If this trend continues — and why shouldn’t it? — the market could encounter a correction rather than a bear romp when the Fed throttles back.

These points aren’t meant to answer the worriers, but to provide ballast to keep their views from carrying you away. I don’t know what’s going to happen; neither do you. And neither do they.

History can offer some perspective, as long as you don’t expect the past to repeat. Putting on fuzzy glasses helps, too. Indexed investors shouldn’t look at their portfolios more than once a month to minimize the misleading noise the market puts out. With that in mind, a monthly plotting of the Dow Jones Industrial Average over the past 50 years shows four bull markets, including the current one. Two of them lasted 61 months, or just over five years — four months longer than the rally in progress. They boosted the Dow by 229% and 83%, respectively, compared to more than 120% for this one. The longest bull tore on for 165 months, or more than 13 years, lifting the Dow a stunning 495%. That span encompassed the late 1990s dot-com bubble. It was marked by two corrections, both in the 16% range. The two shorter bull markets each had one correction, 11% and 13%. So far, the current bull market has endured two corrections, one for 11% and one for 15%.

This history tells us our present-day market isn’t out of line with previous experience, but that guarantees absolutely nothing. As you undoubtedly have learned by now, there aren’t any guarantees in investing.

But if you truly are uneasy about the market’s ability to sustain its push higher, you should raise cash. There are a couple of ways of doing this. If you are a dollar-cost-averaging investor who puts some money into your portfolio on a regular basis, start directing it into a short-term fixed-income fund rather than into more volatile assets such as stocks. When the time comes, you’ll have cash to invest.

If you are fully invested, you can raise cash by adjusting your allocation. Sell core stock and bond funds only as a last resort. Instead, unload any esoteric ETFs or mutual funds that you might have accumulated when you were more confident.

An indexed investor can afford a certain detachment from greed and fear. But that doesn’t mean ignoring deeply felt premonitions. If raising cash gives you comfort, you’re entitled.

Market Insight 11/15/2013

Record Rally Continues Despite Disappointing Domestic Data

U.S. equity markets were able to extend their recent record breaking rally with the major indices displaying a bit of resiliency in the wake of some disappointing domestic data, as stocks continued to find support from eased concerns about the Federal Reserve tapering its asset purchases program. In economic news, industrial production unexpectedly decreased, import prices fell more than forecasted, while wholesale inventories grew inline with economists’ projections.

Treasuries were modestly lower following the data. In equity news, Nordstrom Inc topped the Street’s earnings expectations but lowered its sales guidance, while Kimberly-Clark Corp announced that it will pursue a potential spin-off of its health care business. Jos. A. Bank Clothiers Inc terminated its $2.3 billion all-cash proposal to acquire Men’s Wearhouse Inc, while Warren Buffett’s Berkshire Hathaway Inc disclosed a stake in Dow member Exxon Mobil.

The Dow Jones Industrial Average closed 85 points higher (0.5%) at 15,962-

The S&P 500 Index gained 8 points (0.4%) to 1,798-

The Nasdaq Composite increased 13 points (0.3%) to 3,986-

In moderate volume, 796 million shares were traded on the NYSE, and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil appreciated $0.08 to $93.84 per barrel, wholesale gasoline was $0.02 lower at $2.66 per gallon.

For the week, markets were higher on the week, as the DJIA increased 1.3%, the S&P 500 Index gained 1.6% and the Nasdaq Composite Index was 1.7% higher.

Industrial production, NY manufacturing, and import prices disappoint

Industrial production dipped 0.1% month-over-month n October, compared to the 0.2% increase expected by economists surveyed by Bloomberg, while September’s 0.6% gain was revised to a rise of 0.7%. Utilities and mining production both fell solidly, while manufacturing output during the month grew modestly. Moreover, capacity utilization ticked lower to 78.1% from the unrevised 78.3% in September, compared to forecasts which called for the rate to remain unchanged. Utilization is 2.1% below its long-run average.

Meanwhile, the Import Price Index showed the prices of imported goods fell 0.7% m/m for October, larger than the 0.5% decline that economists had projected, and the 0.2% increase registered in September was revised to a 0.1% gain. Also, y/y, import prices were lower by 2.0% last month, versus the 1.6% decline that was forecasted, after falling by an unrevised 1.0% in September.

Finally, wholesale inventories rose 0.4% m/m in September, matching the growth forecasted by economists, while August’s 0.5% gain was revised to a 0.8% rise. Moreover, sales increased 0.6% m/m, and the inventory-to-sales ratio—the amount of time it would take to deplete inventories at the current sales pace—remained at August’s upwardly revised 1.18 months pace.

Treasuries were modestly lower, with the yield on the 2-year note nearly unchanged at 0.29%, while the yields on the 10-year note and the 30-year bond gained 1 basis point to 2.70%, and 3.79%, respectively.

Europe and Asia mostly higher amid Fed optimism

The European equity markets finished mostly to the upside, as optimism that the U.S. Federal Reserve could continue its current stimulus measures longer than expected continued to buoy sentiment. The upbeat Fed sentiment came in the wake of yesterday’s comments from the likely new Fed Chairman Janet Yellen at her confirmation hearing on Thursday. In economic news in the region, the headline Eurozone Consumer Price Index (CPI) dipped 0.1% m/m in October, matching expectations, after rising 0.5% in September. Moreover, Italy’s September trade surplus narrowed.

Stocks in Asia finished broadly higher in the wake of the record highs in the U.S. yesterday, which came as the Fed’s Vice Chairman Janet Yellen offered comments at her confirmation hearing that boosted optimism that the Federal Reserve could maintain its highly accommodative monetary policy longer than some had expected. Meanwhile, Japanese equities rallied again, with the yen falling to a two-month low versus the U.S. dollar, bolstering export-related stocks.

Stocks in China posted solid gains amid optimism the Chinese government will clarify its policy reform plans as its vague report following its Communist Party policy planning meeting earlier this week disappointed traders. Australia’s S&P/ASX 200 Index and South Korea’s Kospi Index advanced, while Indian markets were closed for a holiday. After the closing bell in the region, Hong Kong reported slightly softer-than-expected 3Q GDP growth. Also, China offered some details regarding its reform plans, including pledges to loosen its one-child policy, allow more private investment in the state sector, and expand farmers’ land rights, while saying it will explore raising the retirement age and easing residence-registration, known as hukou.

Market Insight 11/14/2013

Stocks Discover Gains Amid Fed Confirmation Hearing

US stocks logged gains for a second-straight session, as domestic equity markets shrugged off some disappointing earnings and economic data amid comments from Janet Yellen, at a confirmation hearing for the Fed Vice Chairwoman to succeed Ben Bernanke as the new head of the Central Bank, suggesting that the Federal Reserve may continue with its monetary stimulus.

In economic news, jobless claims fell by a smaller-than-expected amount, the trade deficit widened more than anticipated and 3Q nonfarm productivity missed estimates. Treasuries were higher following the domestic data.

Elsewhere, gold was higher, crude oil prices were slightly lower, while the US dollar was nearly unchanged.

The Dow Jones Industrial Average rose 55 points (0.3%) to 15,876

The S&P 500 Index increased 9 points (0.5%) to 1,791

The Nasdaq Composite added 7 points (0.2%) to 3,973

In moderate volume, 632 million shares were traded on the NYSE, and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil declined $0.12 to $93.76 per barrel, wholesale gasoline added $0.05 to $2.68 per gallon, and the Bloomberg gold spot price gained $5.92 to $1,287.67 per ounce.

Jobless claims dip, while trade deficit widens and 3Q productivity misses forecasts

Weekly initial jobless claims dipped by 2,000 to 339,000 last week, above the 330,000 level that economists surveyed by Bloomberg had expected, as the prior week’s figure was upwardly revised by 5,000 to 341,000. However, the four-week moving average, considered a smoother look at the trend in claims, fell by 5,750 to 344,000, while continuing claims were unchanged at 2,874,000, north of the forecast of economists, which called for a level of 2,870,000.

The preliminary 3Q nonfarm productivity rose 1.9% on an annualized basis, following the downwardly revised 1.8% increase seen in the 2Q. Economists expected a 2.2% gain. Also, unit labor costs declined 0.6%, versus the forecast calling for a 0.1% dip. Unit labor costs were revised higher to a gain of 0.5% in 2Q.

Finally, traders paid some attention to this morning’s testimony before the Senate Banking Committee by Federal Reserve Bank Vice Chairman Janet Yellen regarding her nomination to succeed Ben Bernanke whose term ends January 31, 2014. Yellen would become the first women to lead the 100-year old Central Bank, and has supported the Fed’s unprecedented bond-buying programs.

Yellen’s testimony noted that the economy is “significantly stronger and continues to improve,” but “we have farther to go to regain the ground lost in the crisis and the recession.” The unemployment rate, although down from a peak of 10.0%, at 7.3%, is “still too high.” At the same time, she added that inflation has been running below the Fed’s goal of 2% and is expected to continue to do so for some time.

For these reasons, Yellen said, “I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy.” On tapering, “It’s important not to remove support, especially when the recovery is fragile and the tools available to monetary policy should the economy falter are limited given that short-term interest rates are at zero,” Yellen responded, adding that “I believe it could be costly to withdraw accommodation or to fail to provide adequate accommodation.”

In light of the uncertainty on Capitol Hill, and the lack of a clear economic picture, it seems likely that the Fed will continue what was seen in their meeting just completed and hold off on tapering until at least early 2014. Near-term inflation is still not a concern, and the employment picture remains disappointing, so there seems to be little pressure on the Fed to act sooner. The market will have to prepare for tapering again, after having the rug pulled out from under it with the surprise decision by the Fed to stand pat in their September meeting. Janet Yellen, the pending new Chairman, will certainly have a difficult job, and with the communication missteps seen over the past couple of years by the Fed, it will be interesting to watch how the FOMC evolves under her leadership.

Treasuries were higher following the domestic data, with the yield on the 2-year note decreasing 1 basis point (bp) to 0.29%, while the yields on the 10-year note and the 30-year bond declined 3 bps to 2.69%, and 3.79%, respectively.

Tomorrow’s domestic economic calendar will yield the Empire Manufacturing Index, which measures manufacturing activity in the New York region, which is estimated to move further into expansionary territory during November by posting a level of 5 from the 1.52 seen in October, with a reading above zero denoting expansion. Also we will receive the Import Price Index, with economists forecasting a 0.5% m/m decrease for October following a 0.2% increase in September. Just before the opening bell, industrial production and capacity utilization will be released, with production expected to have risen 0.2% m/m during October, down from the 0.6% increase the previous month, while utilization is anticipated to be unchanged at 78.3%. Rounding out the day, we will receive the release of wholesale inventories, which are expected to rise 0.4% m/m for September.

Europe and Asia mostly higher

The European equity markets finished higher, showing some resiliency in the face of some lackluster GDP figures in the region and the disappointing earnings reports in the U.S. Stocks found support from comments by Fed Vice Chairman Janet Yellen during her confirmation hearing today on Capitol Hill. On the economic front, Eurozone 3Q GDP grew at a 0.1% quarter-over-quarter pace, matching expectations, compared to the 0.3% expansion posted in 2Q. The modest growth for the region came as contractions for French and Italian economic output for the quarter were met with an inline 0.3% pace of expansion out of Germany. In other economic news, U.K. retail sales fell more than expected for October.

Elsewhere, stocks in Asia finished higher on the heels of the gains in the U.S., led by a solid advance for Japanese equities, as the yen fell solidly following remarks from the nation’s finance minister that the country must maintain the option to intervene in the currency markets, per Bloomberg. Meanwhile, Japan reported 3Q GDP growth of 0.5% q/q, above the 0.4% expansion expected by economists, but a slowdown from the 0.9% growth that was posted in 2Q.

Stocks in China rose, but gains were limited by lingering liquidity concerns after the People’s Bank of China drained funds from the money markets for a second week. Moreover, India’s S&P BSE Sensex 30 Index increased despite a late-day report that showed the country’s wholesale price inflation came in hotter than expected for October, while South Korea’s Kospi Index inched higher after the Bank of Korea left its benchmark interest rate unchanged at 2.50%, as expected. Finally, Australia’s S&P/ASX 200 Index finished to the upside after a report showed consumer inflation expectations dipped in November.

Market Insights 11/13/2013

Stocks Higher Despite Central Bank Uncertainty

U.S. equities showed some resiliency to finish higher amid the uncertainty surrounding the direction of monetary policy both locally and globally, which was exacerbated by the Bank of England’s quarterly inflation report that upped concerns that the nation’s central bank may begin to raise rates sooner than some had expected. Treasuries finished higher amid the uncertainty, as well as a decline in U.S. weekly mortgage applications.

Gold and crude oil prices were higher, while the U.S. dollar ended lower, pressured by a rally in the British pound.

The Dow Jones Industrial Average rose 71 points (0.5%) to 15,822-

The S&P 500 Index was 14 points higher (0.8%) at 1,785-

The Nasdaq Composite jumped 46 points (1.2%) 3,966-

In moderately light volume, 693 million shares were traded on the NYSE, and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil rose $0.84 to $93.88 per barrel, wholesale gasoline added $0.04 to $2.63 per gallon, and the Bloomberg gold spot price gained $5.81 to $1,273.85 per ounce.

Weekly mortgage applications decline

The MBA Mortgage Application Index decreased 1.8% last week, after the index fell an upwardly revised 2.8% in the previous week. The decline came as a 2.3% drop for the Refinance Index was accompanied by a 0.5% decrease for the Purchase Index. Moreover, the average 30-year mortgage rate jumped 12 basis points to 4.44%.

Treasuries finished higher, as the yield on the 2-year note dipped 2 bps to 0.32%, the yield on the 10-year note declined 4 bps to 2.74%, and the 30-year bond rate fell 3 bps to 3.84%.

Meanwhile, with uncertainty remaining regarding when the Federal Reserve may begin to reduce its stimulus measures through the tapering of asset purchases, Chairman Ben Bernanke’s speech tonight may garner some attention. Bernanke is set to host a town-hall style meeting with U.S. educators to discuss the Fed’s 100-year history and respond to questions, per Bloomberg.

Recent inflation readings from many parts of the world indicate there has been a deceleration in the pace of inflation—though this is not the same as deflation, which would mean a general decline in prices. Falling commodity prices, sluggish economic growth, and a weak labor market appear likely to keep inflation low for a while longer. The Fed’s “dual mandate” means that its goals are to help the economy maintain full employment and contain inflation pressures. It has explicitly indicated that inflation, as measured by the core PCE index, in the 2% to 2.5% region is acceptable and even desirable in the current environment. With the core PCE recently declining to a 1.4% annualized rate in the third quarter, the Fed may prefer to wait for a reading closer to its 2% target before reducing the pace of its bond purchases or considering a hike in short-term interest rates. The longer inflation remains below the Fed’s target, the more likely it is that the Fed will push out its first hike in the short-term Fed Funds rate beyond the current estimate of 2015.

Tomorrow, the domestic economic calendar will include weekly initial jobless claims, forecasted to fall to a level of 330,000 from the prior week’s 336,000, the trade balance, expected to show the deficit widened to $39.0 billion during September from the $38.8 billion reported in August, as well as preliminary 3Q nonfarm productivity, with economists looking for a 2.2% quarter-over-quarter gain, slightly below the 2.3% increase seen in the 2Q, while unit labor costs for the same period are expected to fall 0.1%, after being unchanged in 2Q.

European and Asian equities fall amid global policy uncertainty

The European equity markets finished lower, with traders grappling with monetary policy uncertainty in the U.S. and U.K., exacerbated by yesterday’s vague policy reform pledge by China. The U.K. came into focus today as the Bank of England released its quarterly inflation report, showing the nation could reach its unemployment target that it set for it to start considering interest rate increases sooner than expected. The BoE noted that a 7% unemployment rate may be reached as early as 3Q 2015, versus its previous outlook for the rate to be reached by 2Q 2016, per Bloomberg.

Also, on inflation, although noting a slight uptick in coming months due to recent utility price increases, the BoE said that the near-term inflation outlook is lower than expected three months ago, due to an appreciation of the pound and persistently weak domestic price pressures. Moreover, a separate release showed U.K. jobless claims fell more than estimated in October. Meanwhile, sentiment may have been dampened by a report that showed Eurozone industrial production fell more than expected month-over-month in September.

Stocks in Asia finished broadly lower on the heels of yesterday’s decline in the U.S., with lingering uncertainty regarding when the Fed may begin to rein in its stimulus measures and a vague pledge by China following its Communist Party policy meeting draining traders’ conviction. China’s Shanghai Composite Index and the Hong Kong Hang Seng Index dropped after the conclusion of China’s Communist Party meeting, in which leaders met to plan policy for the next five-to-ten years, and offered a pledge to focus on reforming the economy to allow the market to play a “decisive” role in allocating resources.

Elsewhere, Japan’s Nikkei 225 Index declined with sentiment being exacerbated by a report showing the nation’s machine orders fell more than expected month-over-month in September, while the yen strengthened somewhat.

Market Insights 11/12/2013

Stocks Slip Amid Fall in Business Optimism

Blue chips lost a step amid a larger-than-expected decline in domestic small business optimism, as well as an ambiguous promise by China to allow the market to play a “decisive” role in allocating resources. Meanwhile, the Nasdaq finished nearly unchanged. In equity news, American Airlines and US Airways announced a settlement with regulators, opening the door for the airlines to complete their planned merger in December, while on the earnings front, Dish Network bested the Street’s forecasts, D.R. Horton was inline with estimates, but News Corp fell short of expectations.

Treasuries finished modestly lower despite the data, while gold and crude oil prices also lost ground, and the U.S. dollar was slightly higher.

The Dow Jones Industrial Average slipped 32 points to 15,751,

The S&P 500 Index was 4 points lower at 1,768, while

The Nasdaq Composite was unchanged at 3,920.

In moderately light volume, 648 million shares were traded on the NYSE, and 1.7 billion shares changed hands on the Nasdaq. WTI crude oil declined $2.10 to $93.04 per barrel.

Small business optimism declines more than expected

The National Federation of Independent Business (NFIB) Small Business Optimism Index declined in October to 91.6 from an unrevised 93.9 in September, compared to the dip to 93.5 that economists surveyed by Bloomberg had expected. The NFIB said the drop was largely due to a precipitous decline in hiring plans and expectations for future small business conditions. Seven of the ten index components turned negative and the NFIB added that the stalemate in early October over funding the government as well as the failed launch of the Obamacare website left 68% of owners feeling that the current period is a bad time to expand.

Treasuries finished mostly lower despite the report, as the yield on the 2-year note gained 2 basis points (bps) to 0.34%, while the yield on the 10-year note inched 1 bp higher to 2.77%, and the 30-year bond was flat at 3.85%.

Tomorrow’s economic calendar will be very light with only MBA Mortgage Applications slated for release.

Europe lower, Asia mixed as China reform plans eyed

The European equity markets finished lower, as traders reacted to China’s Communist Party meeting, in which leaders met to plan policy for the next five-to-ten years. Late in the day, leaders pledged a focus on reforming the economy to allow the market to play a “decisive” role in allocating resources. China has a difficult balancing act as it transforms its economy and Chinese-related investments could follow the stutter-step pattern of this balancing act, resulting in many experts neutral view on emerging market stocks.

Stocks in Asia, on the on the other hand, finished mixed as the pledge from Communist Party leaders came before the end of trading in the region. China’s Shanghai Composite advanced on anticipation of the details from the meeting while Japan’s Nikkei 225 Index rallied as the yen saw some pressure to boost export-related issues. Meanwhile, Australia’s S&P/ASX 200 Index rose with gains being held in check by a report showing business confidence declined for October, while India’s S&P BSE Sensex 30 Index fell ahead of reports on the country’s industrial production and consumer price inflation.

A host of economic reports are scheduled for release overseas tomorrow, including South Korea’s unemployment rate, consumer price data from Japan, CPI from Spain, employment data from the UK, industrial production from the Eurozone, and retail sales from Brazil. As well, the Bank of England will release its quarterly inflation report.

Market Insight 11/11/13

Market Manages Minimal Movement on Holiday

Domestic equity markets started the week off positive, closing with modest gains, after wavering near the flatline for most of the trading session. Volume was lighter than usual amid the Veterans’ Day holiday, while bond markets were closed and the US economic calendar was void of any major releases today.

Meanwhile, gold and the US dollar were lower, while crude oil prices were higher.

The Dow Jones Industrial Average increased 21 points to 15,783,

The S&P 500 Index added 1 point to 1,772.

The Nasdaq Composite advanced 1 point to 3,920.

In moderately light volume, 483 million shares were traded on the NYSE, and 1.6 billion shares changed hands on the Nasdaq. The Bloomberg gold spot price fell $4.84 to $1,283.67 per ounce. Lastly, the Dollar Index—a comparison of the US dollar to six major world currencies—was 0.3% lower at 81.07.

Bond markets closed and U.S. economic calendar quiet on Veterans’ Day

The U.S. bond markets are closed in observance of the Veterans’ Day holiday and the domestic economic calendar is void of any major releases.

On Friday, Treasury yields finished sharply higher following the stronger-than-expected October nonfarm payroll report, which may have boosted expectations that the Federal Reserve may begin tapering its asset purchases sooner than anticipated. The yield on the 2-year note sits at 0.31%, while the yields on the 10-year note and the 30-year bond are at 2.74% and 3.84%, respectively.

This week, the U.S. economic calendar will remain void of headline releases, although tomorrow, the NFIB Small Business Optimism Index for October will be released, which is forecasted to decrease slightly from September’s level to 93.5. Other reports set to come out this week include: nonfarm productivity and unit labor costs, the trade balance, the Import Price Index, the Empire Manufacturing Index, the industrial production and capacity utilization report, and wholesale inventories.

Europe higher, Asia mixed

The European equity markets finished higher, courtesy of some M&A announcements in the region, as well as some favorable industrial output and retail sales reports out of China over the weekend. In economic news in the region, Italian industrial production rose inline with economists’ expectations in September, while Spanish housing transactions fell in September.

Elsewhere, stocks in Asia finished mixed, with sentiment receiving some support from Friday’s stronger-than-expected U.S. employment report. Japanese equities rose as the yen weakened in the wake of the U.S. jobs data, while a report showed Japan’s September current account surplus topped expectations. Stocks in China advanced in the wake of a plethora of October economic data in the region, while traders were cautious as the Chinese Communist Party policy meeting continued and is expected to conclude on Tuesday. China’s consumer price inflation rose to 3.2% year-over-year, from 3.1% in September, compared to the 3.3% rate that economists had expected.

China’s industrial production rose more than expected, while the nation’s retail sales and fixed asset investment rose roughly inline with forecasts. However, China’s new yuan loans, and aggregate financing, a broad measure of the total credit issued in the nation, both came in below estimates. Elsewhere, Australia’s S&P/ASX 200 Index declined and South Korea’s Kospi Index decreased, while India’s S&P BSE Sensex 30 Index fell amid some weakness in the rupee.

The international economic calendar for tomorrow will yield the consumer confidence index from Japan, CPI data from Germany, as well as PPI, CPI and retail price data from the UK.