Monthly Archives: May 2015

Market Insights 5/29/2015

Domestic Output Report Sours Sentiment

The U.S. equity markets finished the holiday-shortened week lower following a revision to 1Q GDP that showed a contraction in output, as well as an unexpected decline in regional manufacturing activity. A solid rise in crude oil prices limited the damage in the energy sector, which was the only sector that notched a gain in today’s action.

Treasuries were higher, with yields falling, amid the negative mood, along with gold, while the U.S. dollar was flat. Earnings reports from the retail sector continued to show mixed results, while news of two possible major corporate deals reaped some positive attention.

The Markets….

The Dow Jones Industrial Average declined 115 points (0.6%) to 18,011

The S&P 500 Index fell 13 points (0.6%) to 2,107

The Nasdaq Composite lost 28 points (0.6%) to 5,070

In heavy volume, 1.1 billion shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq

WTI crude jumped $2.62 higher to $60.30 per barrel, wholesale gasoline rose $0.09 to $2.06 per gallon

The Bloomberg gold spot price increased $1.98 to $1,190.38 per ounce

Markets were lower for the week, as the DJIA dropped 1.2%, the S&P 500 Index decreased 0.9% and the Nasdaq Composite Index was 0.4% lower

Downward revision to 1Q GDP smaller than expected

The second look (of three) at 1Q Gross Domestic Product, the broadest measure of economic output, showed a quarter-over-quarter annualized rate of contraction of 0.7%, revised lower from the 0.2% expansion reported in the first report. This compared to the Bloomberg forecast of a downwardly adjusted 0.9% contraction. 4Q GDP expanded by an unrevised 2.2%. Personal consumption came in at a 1.8% gain for 1Q, from the 1.9% increase previously reported, and compared to the slight upward revision to a 2.0% rise that was expected. Personal consumption grew by an unrevised 4.4% in 4Q.

Along with the softer-than-initially reported personal consumption, the downward 1Q GDP revision came as imports were adjusted higher and private inventory investment was revised lower, partially offset by an upward modification to residential fixed investment. 1Q output was hamstrung by the stronger U.S. dollar, the West Coast port shutdown, harsh winter weather and reductions of capital expenditures out of the energy sector as crude oil prices dropped.

On inflation, the GDP Price Index was unrevised at a 0.1% dip, matching forecasts, while the core PCE Index, which excludes food and energy, was revised slightly lower to a 0.8% rise, compared to forecasts of an unadjusted 0.9% gain.

The final University of Michigan Consumer Sentiment Index was revised higher to 90.7 from the preliminary level of 88.6 for May, versus an expected 89.5 figure, but was down from the 95.9 level posted in April. Components pertaining to current economic conditions and the economic outlook were both revised higher, but both were lower versus April. The 1-year inflation projection was revised to 2.8% from 2.9%, and compared to 2.6% in April, and the 5-10 year inflation outlook was unrevised at 2.8%, up from 2.6% in the month prior.

The Chicago Purchasing Managers Index showed growth in Midwest activity fell back into contraction (below 50), dropping to 46.2 in May, from 52.3 in April, and versus expectations of an improvement to 53.0.

Treasuries finished higher, as yields retreated, the yield on the 2-year note declined 2 basis points to 0.61%, while the yields on the 10-year note and the 30-year bond are decreased 1 bp to 2.12% and 2.88%, respectively.

Europe lower on data and festering Greek uncertainty, Asia mixed

The European equity markets finished lower, with traders digesting a plethora of data in the region, along with the downward revision to U.S. 1Q GDP. Also, Greek debt deal uncertainty lingered to hamstring sentiment with the nation continuing to offer optimism that a deal to unlock further bailout aid and likely avoid a default could be reached this weekend, contradicting recent commentary from European officials suggesting a deal is not imminent. The euro traded higher versus the U.S. dollar, while bond yields in the major eurozone markets dipped. In economic news, German retail sales rose more than expected for April, while French consumer spending for the month rose by a smaller amount than expected. Moreover, a plethora of 1Q GDP reports were released, with Greece and Switzerland both posting quarter-over-quarter contractions of 0.2%, while Italy’s output grew 0.3%, inline with expectations.

The U.K. FTSE 100 Index was down 0.8%, Germany’s DAX Index declined 2.3%, France’s CAC-40 Index dropped 2.5%, Italy’s FTSE MIB Index traded 1.1% lower, Spain’s IBEX 35 Index moved 1.5% to the downside, Switzerland’s Swiss Market Index descended 1.7%, and Greece’s ASE Athens Index fell 1.4%.

Stocks in Asia finished mixed to close out the month, with Japanese stocks modestly extending their winning streak to 11-straight sessions, and to a fresh 15-year high, but strength in the yen and an unexpected drop in April household spending limited gains. As well, the island nation’s core consumer price inflation was slightly hotter than expected for April. Meanwhile, Chinese and Hong Kong markets dipped, extending yesterday’s sharp drop, with the former tumbling 6.5%, amid exacerbated liquidity concerns as more brokerage firms tightened margin lending requirements. Finally, stocks in Australia and India’s advanced, supported by optimism that their respective central banks could cut interest rates following their monetary policy meetings next week. After the closing bell, India reported a stronger-than-expected 7.5% y/y pace of expansion.

The Week in Review: Stocks stumble in shortened week

The domestic equity markets posted a weekly loss after sentiment remained sluggish following the three-day Memorial Day holiday weekend. The U.S. dollar resumed its rally as some upbeat reads on domestic new home sales, Consumer Confidence and core durable goods orders teamed up with recent Fed commentary to foster a flare-up in rate hike uncertainty. Greek debt deal uncertainty stymied conviction, along with a sharp midweek sell-off in mainland Chinese stock markets amid intensified liquidity concerns as brokerage firms tightened margin trading requirements. Retail sector earnings reports remained mixed, while M&A news dominated the equity headlines, with Charter Communications Inc’s $55 billion agreement to acquire Time Warner Cable Inc. and Avago Technologies Ltd’s deal to acquire Broadcom Corp. for $37 billion.

As noted, investors may be waiting for a catalyst, while international developments are moving toward center stage. A rebound from the weak start for the U.S. economy this year has yet to surface, but it remains our base case. The consensus, and ours, expectation is that the Fed will remain on hold through the summer and not begin raising rates until at least September. But it’s the subsequent path of rates that matters more than the start point.

The Week ahead: Heavy week of data looms

With Fed rate uncertainty resurfacing, next week’s heavy U.S. economic calendar will likely drive the market action with Monday’s May ISM Manufacturing Index, Wednesday’s ISM non-Manufacturing Index and Fed Beige Book, while culminating with Friday’s non-farm payroll report for last month.

Our long-term view continues to be that the Fed’s approach to tightening monetary policy will be slow and that the potential upside in yields will be limited due to structurally slower economic growth and lower inflation than in the past. Its goal is to “normalize” policy rather than slow down an overheating economy. However, in the near term, investors should expect more volatility as expectations about central bank policies evolve.

Other domestic reports slated for next week include: personal income and spending, Markit’s business activity reports, construction spending, factory orders, monthly auto sales, ADP’s Employment Change report, the trade balance, 1Q nonfarm productivity and unit labor costs, and consumer credit.

Another first-quarter shocker: U.S. GDP falls 0.7%

The economy contracted in the first quarter for the second straight year, a disappointing start that could foil the chance of the U.S. reaching 3% growth in 2015 for the first time in a decade.

Gross domestic product — the value of everything a nation produces — shrank by 0.7% annual rate from January to March, the Commerce Department said Friday. Last month the government originally had reported a tepid 0.2% increase in GDP.

The big markdown in the economy’s performance stemmed from a smaller inventory buildup and higher imports than preliminary data showed. Consumers, for their part, spent at moderate rate and businesses cut overall investment except in residential housing.

Wall Street was prepared for a negative number. Economists had expected GDP to be revised to show a 1% decline. Investors are likely to brush off the weak report, focusing more on the current trajectory of the economy.

Fresh evidence points to a pickup in U.S. growth, but perhaps not quite as fast as hoped. Economists survey estimates GDP will increase 3.2% in second quarter, though a new tracking tool created by the Atlanta Federal Reserve puts the gain at just under 1% with a month to go.

The economy has been bolstered by an upsurge in hiring over the past year, along with scattered signs of rising wages. Companies have hired nearly 4 million workers since 2014, driving the official unemployment rate down to a seven-year low of 5.4%.

These newly employed workers are spending more money, though not lavishly so, to help to keep the wheels of the economy turning. Consumer spending accounts for up to 70% of U.S. economic activity. In the first quarter, consumer spending rose at a 1.8% clip, down a tick from the original reading. Americans spent a bit less on cell-phone service than initially reported.

The increase in spending, however, was well below the 2.4% average since the U.S. recovery firmly took root in 2010. Unless consumers spend more, the economy is unlikely to grow much faster in light of new headwinds such as a strong dollar and renewed weakness in business investment.

A soaring dollar has curbed U.S. exports by making American goods and services more expensive in other parts of the world. And the U.S. energy industry has cut back on new drilling platforms and other expensive equipment amid a plunge in oil prices.

In the opening months of 2015, exports sank 7.6% while the increase in imports was raised to 5.6% from a preliminary 1.8%, revised government data show. A larger trade deficit subtracts from GDP. Business investment in structures such as oil platforms, meanwhile, sank at a 20.8% pace in the first quarter.

Companies also restocked warehouses less than originally estimated. The government now says the value of inventories, a plus for GDP, rose by $95 billion instead of $110.3 billion. Companies did spend more on equipment, however. Equipment investment was marked up to 2.7% from basically no change.

Perhaps more worrisome, adjusted pretax corporate profits fell 5.9% in the first quarter and declined for the second quarter in a row for the first time since the middle of the 2007-2009 recession. Reduced profits could cause businesses to tighten spending even further if sales don’t accelerate.

Most other figures in the GDP report were little changed.

Another stunningly weak first quarter, meanwhile, has generated fresh doubts about the accuracy of the government’s official GDP tally. The GDP report appears to underestimate growth in the first quarter, and overestimate growth in the second and third quarters, many analysts contend.

Whatever the case, the longer-term trend is inescapable. The U.S. recovery now entering its seventh year is the weakest since the end of World War Two. The slow start in 2015 is also likely to doom the U.S. to another year of sub-3% growth. The last time the economy topped that mark and matched the nation’s historical average of 3.3% growth was in 2005.

GDP is revised twice after its initial release. The final estimate will come out next month.

Market Insights 5/28/2015

Market Fail to Add to Gains

The U.S. equity markets were unable to capitalize on yesterday’s gains, finishing modestly lower in today’s session, with conviction hamstrung early on by continued Greek uncertainty and a sharp sell-off in China on liquidity concerns.

Treasuries were mixed amid a divergent economic calendar that showed jobless claims rose and pending home sales jumped. Retail sector earnings reports dominated the equity front, with mixed results, while a tie-up in the semiconductor space garnered focus. Finally, gold and crude oil prices reversed course to finish higher, while the U.S. dollar lost ground.

The Markets….

The Dow Jones Industrial Average declined 37 points (0.2%) to 18,126

The S&P 500 Index fell 3 points (0.1%) to 2,121

The Nasdaq Composite lost 9 points (0.2%) to 5,098

In moderate volume, 688 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq

WTI crude inched $0.17 higher to $57.68 per barrel, wholesale gasoline rose $0.04 to $1.97 per gallon

The Bloomberg gold spot price increased $0.40 to $1,188.49 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% lower at 97.11

Jobless claims rise, while pending home sales top forecasts

Weekly initial jobless claims increased by 7,000 to 282,000 last week, above the 270,000 Bloomberg estimate, as the prior week’s figure was revised upward by 1,000 to 275,000. The four-week moving average rose by 5,000 to 271,500, while continuing claims gained 11,000 to 2,222,000, north of the forecasted 2,200,000 level.

Pending home sales rose 3.4% month-over-month in April, versus the projected 0.9% gain, and following the upwardly revised 1.2% increase registered in March. Compared to last year, sales were 13.4% higher last month, versus the 10.9% rise that was anticipated. Pending home sales reflect contract signings and are used as a gauge of the pipeline of existing home sales, which declined in April.

Treasuries finished mixed, as the yield on the 2-year note declined 3 basis points to 0.62%, while the yield on the 10-year note was unchanged at 2.13% and the 30-year bond rate rose 2 bps to 2.89%.

The week’s economic calendar will round out tomorrow with the second look (of three) at 1Q GDP, with economists forecasting a downward revision to the preliminary reading of a 0.2% quarter-over-quarter annualized growth rate to a 0.9% contraction in output, while personal consumption, the GDP Price Index, and the core PCE are expected to remain at their previously reported levels. As well, the Chicago Purchasing Managers Index will be reported, expected to move higher to a level of 53.1 for May from the 52.3 posted in April, and rounding out the day will be the final University of Michigan Consumer Sentiment Index for May, which is anticipated to have risen to a level of 89.5 from the 88.6 registered earlier in the month.

Europe gives back yesterday’s gains, Asia mixed

European equities traded mostly lower, giving back some of yesterday’s broad-based gains that were bolstered by late-day reports that Greece is drafting an accord with its international creditors to secure further bailout aid. Greece faces liquidity issues with a key debt payment to the International Monetary Fund (IMF) coming due next week. However, yesterday’s optimism of a deal waned as some European officials that are participating in a G-7 meeting offered commentary that suggest a deal is not imminent. The euro was modestly higher versus the U.S. dollar and bond yields in the region finished mixed. In economic news, U.K. 1Q GDP expanded at a 0.3% quarter-over-quarter pace, down from the 0.6% growth that was posted in 4Q and missing expectations of a 0.4% rate of expansion. Eurozone economic and consumer confidence figures for this month were roughly inline with expectations, while Switzerland’s trade surplus widened for April. Finally, Spain’s 1Q GDP was unrevised as expected at a 0.9% q/q rate of growth and the nation’s retail sales rose for last month.

The U.K. FTSE 100 Index ticked 0.1% higher and Switzerland’s Swiss Market Index finished flat, while Germany’s DAX Index decreased 0.8%, France’s CAC-40 Index fell 0.9%, Spain’s IBEX 35 Index descended 0.4%, Italy’s FTSE MIB Index declined 0.5%,and Greece’s ASE Athens Index dropped 1.7%.

Stocks in Asia finished mixed following the rebounds in the U.S. and Europe yesterday, while mainland Chinese markets fell sharply, with the Shanghai Composite Index pulling back from its meteoric rise, as more brokerage firms in the region tightened margin trading requirements, while stocks in Hong Kong also fell. However, Japanese stocks extended their winning streak to 10-straight sessions, with the Nikkei 225 Index advancing to a fresh 15-year high on the recent sell-off in the yen, as the U.S. dollar has resumed its rally amid flared-up fed rate hike uncertainty, and despite a smaller-than-expected rebound in the island nation’s April retail sales. Lastly, Australia’s markets slipped on the heels of a report showing the country’s 1Q capital expenditures fell by a larger amount than expected.

Market Insights 5/27/2015

Stocks Rebound

The U.S. equity markets staged a solid advance, reclaiming some recent losses which resulted following upbeat economic data that had investors contemplating when the Federal Reserve will commence its path to normalizing monetary policy.

The lone economic release of the day showed mortgage applications declined, while the Street was treated to a variety of corporate earnings reports. Treasuries were mixed, crude oil prices were lower and gold and the U.S. dollar were nearly unchanged.

The Markets..

The Dow Jones Industrial Average advanced 121 points (0.7%) to 18,163

The S&P 500 Index increased 19 points (0.9%) to 2,123, 9 of the 10 S&P 500 sectors were in the green with Technology +1.89%, HealthCare +1.16% and Financials +1.10% leading the way higher and Energy -.18% the only sector to finish the day in the red.

The Nasdaq Composite ascended 74 points (1.5%) to 5,107

In moderate volume, 717 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq

WTI crude slid $0.52 to $57.51 per barrel, wholesale gasoline lost $0.05 to $1.93 per gallon

The Bloomberg gold spot price increased $0.50 to $1,187.80 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 97.27

Mortgage applications decline

The MBA Mortgage Application Index declined 1.6% last week, after decreasing 1.5% in the previous week. The fall came as a 3.9% drop in the Refinance Index more than offset a 1.2% rise for the Purchase Index, with the average 30-year mortgage rate gaining 3 basis points to 4.07%.

Treasuries were mixed, with the yield on the 2-year note adding 1 bp to 0.65%, while the yield on the 10-year note declined 1 bp to 2.13% and the 30-year bond rate ticked 2 bps lower to 2.88%.

Tomorrow, the U.S. economic calendar will yield reports on weekly initial jobless claims, expected to have moved lower to a level of 270,000 from the 274,000 posted the week prior, and pending home sales, forecasted to show the pipeline for existing home sales rose 0.9% m/m during April following the 1.1% gain for March.

European stocks gain on Greek reports, Asia mixed

The European equity markets finished broadly higher, with M&A news out of the airline and tobacco sectors aiding sentiment, while the euro traded modestly higher against the U.S. dollar and bond yields in the region were mixed. Stocks rebounded from yesterday’s losses despite Greece having yet to please its international creditors with its reform progress that is required to unlock further bailout aid, with concerns about a default elevated as a key payment to the International Monetary Fund (IMF) is coming due next week.

Early gains were extended by a report that an official with knowledge of the matter said Greece and its creditors have started drafting a staff level accord to solve its debt crisis, per Bloomberg. In economic news, German consumer confidence unexpectedly improved modestly for June and Spanish mortgage statistics rose respectively, while French consumer confidence for May surprisingly declined.

Stocks in Asia finished mixed with the declines in the U.S. and Europe yesterday constraining conviction amid the resumption in the rally of the U.S. dollar on flared-up Fed rate hike uncertainty following some upbeat economic reports. However, China’s Shanghai Composite Index continued its meteoric rise on the heels of a report showing the nation’s industrial profits rebounded in April and Japan’s Nikkei 225 Index moved modestly higher to extend its 15-year high aided by some weakness in the yen.

We believe Japan’s economy is struggling to maintain momentum after emerging from recession in 2014. However, the decline in the yen, combined with passing the Trans-Pacific Partnership, should offer an economic boost as Japan has almost no tariffs on most manufactured products so those businesses would not lose any protection in domestic markets; but the elimination of tariffs by other countries could lead to higher exports for Japanese manufacturers.

Market Insights 5/26/2015

New Data Weighs on Equities

The U.S. equity markets closed the trading session with sharp losses as investors were treated to a slew of domestic economic reports that aided in a rally for the U.S. dollar with some market participants deciphering the deluge of data as supportive of the Federal Reserve commencing the tightening of its monetary policy.

Treasuries were mostly higher following the data, while gold and crude oil prices were lower.

The Markets…

The Dow Jones Industrial Average dropped 190 points (1.0%) to 18,042

The S&P 500 Index fell 22 points (1.0%) to 2,104

The Nasdaq Composite tumbled 57 points (1.1%) to 5,033

In moderate volume, 796 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq

WTI crude slid $1.69 to $58.03 per barrel, wholesale gasoline lost $0.06 to $1.98 per gallon

The Bloomberg gold spot price decreased $18.91 to $1,187.70 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—rallied 1.3% to 97.28

Core durable goods orders top forecasts, kicking off a heavy day of data

Durable goods orders declined 0.5% month-over-month (m/m) in April, matching the Bloomberg estimate, while March’s 4.0% rise was revised to a 5.1% increase. Ex-transportation, orders rose 0.5% m/m, versus the forecast of a 0.3% gain, and March’s 0.2% decrease was favorably revised to a 0.6% increase. Orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, grew 1.0%, compared to the projected 0.3% increase, and following the upwardly revised 1.5% rise in the month prior, from an initially reported decline of 0.5%.

The Consumer Confidence Index rose to 95.4 in May from a downwardly revised 94.3 in April and compared to the estimated 95.0. Components pertaining to expectations of business conditions dipped m/m, while sentiment toward the present situation improved solidly. Also, on employment, the labor differential—consumers’ appraisal of jobs being “plentiful” minus being “hard to get”—improved to -6.6 from -6.9 last month.

New home sales increased 6.8% m/m in April, to an annual rate of 517,000 units from March’s upwardly revised 484,000 unit pace, and compared to the forecast of a 508,000 rate. The median home price rose 8.3% y/y to $297,300. The supply of new home inventory declined to 4.8 months at the current sales pace. Sales in the Midwest and South rose m/m, while declining in the West and Northeast. New home sales are considered a timely indicator of conditions in the housing market as they are based on contract signings instead of closings.

The preliminary Markit U.S. Services PMI Index declined to 56.4 in May from 57.4 in April, and compared to the forecasted decrease to 56.5, with a reading above 50 denoting expansion.

The 20-city composite S&P/Case-Shiller Home Price Index showed a gain in home prices of 5.0% y/y in March, above the estimate of a 4.6% increase. M/M, home prices were higher by 1.0% on a seasonally adjusted basis for March, north of forecasts calling for a 0.9% gain.

The Dallas Fed Manufacturing Index fell to -20.8 for May from April’s -16.0 level and compared to the forecasted -12.4 figure. A reading below zero denotes contraction.

The Richmond Fed Manufacturing Activity Index improved to 1 in May from -3 in April, versus expectations of an improvement to 0, the demarcation point between expansion and contraction.

As the World Turns, we still believe economic growth will rebound in the coming months, with data suggesting the labor market is relatively healthy, small business optimism improving, and capital expenditure plans expanding, while housing has been a brighter spot. The consensus, and our, expectation is that the Fed will remain on hold through the summer and not begin raising rates until at least September. But it’s the subsequent path of rates that matters more than the start point.

Treasuries were mostly higher with the yield on the 2-year note flat at 0.61%, while the yield on the 10-year note dropped 8 basis points to 2.13% and the 30-year bond rate fell 10 bps to 2.89%.

Tomorrow, the U.S. economic calendar will quiet down, with weekly MBA Mortgage Applications expected to be the lone release.

Europe mostly lower, Asia mixed

The European equity markets finished mostly lower, with some markets that were closed yesterday for a holiday returning to action, while traders digested the plethora of U.S. data. Greek concerns continued to linger, though the equity markets in Greece rebounded somewhat from yesterday’s decline that came as the nation has yet to seal a deal to continue to tap bailout aid, with a key debt payment due next week to the International Monetary Fund (IMF). The euro traded solidly lower versus the U.S. dollar, while bond yields in the region were mixed, with rates in peripheral eurozone bond markets gaining some ground led by Greece.

Stocks in Asia finished mixed ahead of the return to action for the U.S. and some European markets. Chinese stocks were outperformers, finding strength in optimism that access to stocks in the region is expanding with the expected exchange link between Shenzhen and Hong Kong later this year coming on the heels of the recently opened Shanghai/Hong Kong link, while the nation announced on Friday cross border sales of mutual funds will begin July 1. Japanese stocks ticked higher, allowing the Nikkei 225 Index to extend its 15-year high and Australia experienced broad-based gains, while Indian equities declined amid some posturing ahead of some derivatives expiration later this week, per Bloomberg, and lingering concerns about corporate profits.

Market Insights 5/22/2015

Stocks Finish Friday Flat

The domestic equity markets ended the final session of the week a bit lower from the previous close with volume lighter than usual ahead of the extended Memorial Day weekend which will have all U.S. markets closed on Monday.

Treasuries were mostly lower, with yields higher, following a morning read on consumer price inflation, while Fed Chair Janet Yellen delivered a speech today in Rhode Island. The U.S. dollar and gold were higher and crude oil prices were lower.

The Markets…

The Dow Jones Industrial Average declined 54 points (0.3%) to 18,232,

The S&P 500 Index moved 5 points (0.2%) lower to 2,126, and

The Nasdaq Composite lost 1 point to 5,089.

In moderately light volume, 617 million shares were traded on the NYSE and 1.5 billion shares changed hands on the Nasdaq.

WTI crude lost $1.00 to $59.72 per barrel, wholesale gasoline was down $0.03 at $2.04 per gallon, and

The Bloomberg gold spot price increased $0.71 to $1,205.57 per ounce. Elsewhere,

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 1.0% higher at 96.24.

Markets were mixed for the week, as the DJIA dipped 0.2%, while the S&P 500 Index increased 0.2% and the Nasdaq Composite Index was 0.8% higher.

Core consumer price inflation slightly hotter than expected, Fed Chair set to speak

The Consumer Price Index (CPI) was up 0.1% month-over-month (m/m) in April, matching the Bloomberg forecast, while March’s 0.2% increase was unrevised. The core rate, which strips out food and energy, rose 0.3% m/m, compared to forecasts of a 0.2% gain and March’s unrevised 0.2% rise. Y/Y, prices were down 0.2% for the headline rate, inline with forecasts, while the core rate was 1.8% higher, compared to expectations of a 1.7% rise. March’s y/y figures showed an unrevised 0.1% dip and an unadjusted 1.8% rise for the headline and core rates respectively.

Additionally, Federal Reserve Chairwoman Janet Yellen delivered a speech today in Providence, Rhode Island, reflecting on her own views about the outlook for the U.S. economy. The Fed Chair indicated that the economy is still recovering from the Great Recession and to some extent some economic headwinds continue to influence the economic outlook and as they are not fully abated she expects that continued growth in employment and output will be moderate over the remainder of the year and beyond. Further, if the economy continues to recover as she expects, she thinks “it will be appropriate at some point this year to take the initial step to raise the federal funds rate target and begin the process of normalizing monetary policy.” However, continued improvement in labor market conditions, and reasonable confidence that inflation will move back to two percent over the medium term are needed to support taking this step.

Treasuries were mostly lower, with the yield on the 2-year note rising 4 basis points to 0.61% and the yield on the 10-year note advancing 2 bps to 2.21%, while the 30-year bond rate was flat at 2.98%.

Please note: All U.S. markets will be closed on Monday in observance of the Memorial Day holiday.

Another modest move for the equity markets

Most domestic equity markets finished modestly higher for a third-straight week, with stocks remaining near record high levels. Initial Fed rate hike expectations for later this year were little changed after the release of the April monetary policy meeting minutes, along with mixed housing data, with disappointing existing home sales and homebuilder sentiment reports being met with a jump in housing construction figures. Volatility remained in the bond, foreign exchange and crude oil markets to keep conviction contained, along with disappointing reads on Chinese and German business activity, though Japan reported stronger-than-expected 1Q GDP growth. M&A news continued to pour in, headlined by CVS Health Corp’s $10.4 billion—excluding debt—agreement to acquire Omnicare Inc. Finally, the retail sector continued to dominate the earnings front, with better-than-expected bottom-line results from Best Buy Co. Inc., Target Corp. and Dow member Home Depot Inc. being met with softer-than-forecasted quarterly results from Dow member Wal-Mart Stores Inc.

Europe mixed as Greek deal remains elusive, Asia mostly higher to close out the week

The European equity markets finished mixed, with Greece continuing to meet with its international creditors, though a deal to unlock further bailout aid has yet to be reached. The nation is facing the threat of a default with debt payments coming due as the nation and its banking sector are facing liquidity issues. The euro was lower amid the upside reversal for the U.S. dollar on a slightly hotter-than-expected inflation report, while bond yields in the region were relatively calm.

Traders also digested some German economic reports, with the nation’s 1Q GDP growth being unrevised as expected at a 1.1% quarter-over-quarter annualized pace of growth, a deceleration from the 2.8% expansion posted in 4Q. Also, May German business confidence, as reported by the Ifo Institute, declined for the first time in seven months, per Bloomberg, but by a smaller amount than economists had projected. In other economic news, French business sentiment improved for this month, while Italian industrial orders unexpectedly fell in March. European stocks managed to gain solid ground this week, aided by the announcement from a European Central Bank member that it will begin to front-load its bond purchases to boost liquidity ahead of an expected summer lull.

Stocks in Asia finished mostly to the upside, led by a surge from equities in mainland China and Hong Kong amid continued hopes of further stimulus measures and as financials showed solid strength. Japanese stocks were modestly higher despite some strength in the yen, as the Bank of Japan held its monetary policy steady and slightly upgraded its economic assessment. South Korean equities were influenced higher amid strength in oil & gas issues, along with solid gains in technology, industrials and financials stocks. Finally, Indian equities advanced as optimism toward further rate cuts continued to buoy sentiment.

Market Insights 5/21/2015

Stocks Manage Mild Gains

The U.S. equity markets managed decent gains, with the S&P 500 closing at a new all-time high, despite trading in a relatively tight and flat range for most of the day following a plethora of domestic and international economic releases.

The Street was treated to a round of varied corporate earnings reports as well as a major acquisition in the health care sector. Treasuries and crude oil prices were higher, while gold and the U.S. dollar were lower.

The Markets…

The Dow Jones Industrial Average was nearly unchanged at 18,286

The S&P 500 Index gained 5 points (0.2%) to 2,131

The Nasdaq Composite increased 19 points (0.4%) to 5,091

In moderate volume, 698 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq

WTI crude gained $1.74 to $60.72 per barrel, wholesale gasoline added $0.04 to $2.08 per gallon

The Bloomberg gold spot price decreased $3.48 to $1,206.32 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% lower at 95.34

Existing home sales decline to headline a heavy dose of economic data

Existing-home sales in April missed expectations, decreasing 3.3% month-over-month to a 5.04 million annual rate and compared to the Bloomberg forecast of a rise to a 5.23 million pace. March’s figure was adjusted upward to a 5.21 million unit rate, while the median existing-home price was up 8.9% from a year ago at $219,400. Single-family sales fell m/m but were still 6.5% higher y/y, while sales were lower m/m in most regions except for in the Midwest. Y/Y sales were higher in all regions. The National Association of Realtors (NAR) noted the disappointing April report reflected lagging supply relative to demand and the ensuing upward pressure being put on prices.

New home construction is needed to ease the supply issue in many of the markets but the jump in the Housing Market Index—a key leading indicator for housing starts—supports the view that housing is likely to be a brighter light illuminating the economy this year.

Weekly initial jobless claims rose by 10,000 to 274,000 last week, north of the 270,000 estimate, as the prior week’s figure was un-revised at 264,000. The four-week moving average fell by 5,500 to 266,250, while continuing claims declined by 12,000 to 2,211,000, south of the forecasted 2,231,000 level.

The Conference Board’s Index of Leading Economic Indicators (LEI) jumped 0.7% m/m in April, well above the projected 0.3% growth, while March’s initial 0.2% gain was revised to a 0.4% increase. The report showed positive contributions from components pertaining to the yield curve and building permits, while ISM new orders dipped.

The preliminary Markit U.S. Manufacturing PMI Index for May declined to 53.8 from April’s 54.1 level, and compared to the expected 54.5, with a reading above 50 denoting expansion.

In May regional manufacturing news, the Philly Fed Manufacturing Index declined to 6.7 from 7.5 in April, and compared to the increase to 8.0 that was forecasted, while the Kansas City Fed Manufacturing Activity Index fell to -13 from -7 in April, and compared to the improvement to -4 that was expected. Zero is the demarcation point between expansion and contraction for both indexes.

Treasuries were higher, with the yield on the 2-year note losing 1 basis point to 0.57%, and the yields on the 10-year note and the 30-year bond declining 6 bps to 2.19% and 2.99%, respectively.

Tomorrow, the U.S. economic calendar will lighten up as the Consumer Price Index (CPI) is set to be the lone release, with economists expecting a 0.1% increase m/m during April, following the 0.2% gain posted in March. Excluding food and energy, the core rate is expected to have risen 0.2% m/m, matching that seen in the month prior.

Europe mostly higher despite global data, Asia mixed

The European equity markets overcame early sluggishness and finished mostly to the upside, courtesy of strength in energy stocks as crude oil prices showed some late-day strength. Traders reacted to some mixed global economic data, along with yesterday’s April meeting minutes from the U.S. Federal Reserve that dampened June rate liftoff expectations, but left the door open for rate hikes later this year. Markit’s preliminary Eurozone Composite PMI Index—a gauge of business activity out of both the services and manufacturing sectors—unexpectedly declined to 53.4 in May, from 53.9 in the April, where economists had expected it to remain. Growth in manufacturing activity surprisingly accelerated, while expansion in services sector output decelerated more than expected, with Germany showing softer-than-expected growth in both. However, the composite index for the region continued to depict expansion (a reading above 50). In other economic news, U.K. retail sales for April rose much more than expected.

Stocks in Asia finished mixed as traders digested yesterday’s April meeting minutes from the U.S. Fed. Also, Chinese manufacturing data was in focus after the preliminary HSBC China Manufacturing PMI Index improved to 49.1 in May from 48.9 in April and compared to the rise to 49.3 that was expected. This was the third-straight month depicting contraction (a reading below 50), but mainland Chinese stocks gained solid ground as the report preserved further stimulus optimism. Japanese equities were flat following gains that came from some weakness in the yen and yesterday’s stronger-than-expected 1Q GDP report. The lack of direction for Japanese stocks came amid some caution as the Bank of Japan began its two-day monetary policy meeting, overshadowing an upbeat read on the nation’s manufacturing activity, which moved back into expansion territory for May.

Market Insights 5/20/2015

Stocks Drift Lower Following Fed Minutes

The U.S. equity markets staged mild gains before ultimately pulling back and closing mixed on the heels of the release of the Federal Reserve’s minutes from its April monetary policy meeting.

Equities were treated to a mixed bag of earnings results from the retail sector, while financials were in focus following announced findings of probes into manipulation of foreign exchange and Libor markets. Treasuries were higher, as were the U.S. dollar, gold and crude oil prices.

The Markets…

The Dow Jones Industrial Average declined 14 points (0.1%) to 18,291

The S&P 500 Index lost 2 points (0.09%) to 2,126, sectors were mixed on the day with 5 down and 4 up, Utilities +.16%, Energy +.19% and HealthCare+.13% leading the way higher and Industrials -.37% and Financials -.28% providing the drag.

Small and MidCaps outpaced LargeCaps with the the MidCap 400 up .03% and the SmallCap 600 higher by .07% when the S&P 500 returned -.09%.

The Nasdaq Composite gained 2 points to 5,072

In moderate volume, 692 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq

WTI crude gained $0.99 to $58.98 per barrel, wholesale gasoline added $0.04 to $2.04 per gallon

The Bloomberg gold spot price increased $2.39 to $1,210.25 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% higher at 95.54

Fed releases minutes, mortgage applications decline

The minutes from the Federal Open Market Committee’s (FOMC) two-day monetary policy meeting, which concluded on April 29, showed that Committee members remain divided over the timing of the first rate hike. Although officials may hold diverging views about the likely timing and pace of policy firming, they agreed that the Committee’s decision to begin firming would depend on the incoming data and their implications for the economic outlook. In discussing the language for its post-meeting statement, the Committee also agreed that the wording should reflect their assessment that the Committee’s decision to begin normalizing policy would be determined on a meeting-by-meeting basis, and that this assessment would take into account a wide range of information.

Our long-term view continues to be that the Fed’s approach to tightening monetary policy will be slow and that the potential upside in yields will be limited due to structurally slower economic growth and lower inflation than in the historical past. It’s goal is to “normalize” policy rather than slow down an overheating economy. In the near term, investors should expect more volatility as expectations about central bank policies evolve and get highlighted in the news.

The MBA Mortgage Application Index declined 1.5% last week, after decreasing 3.5% in the previous week. The decline came as a 0.3% rise in the Refinance Index was more than offset by a 3.7% drop for the Purchase Index, with the average 30-year mortgage rate rising 4 basis points to 4.04%.

Treasuries were higher with the yield on the 2-year note declining 2 basis bps to 0.59%, the yield on the 10-year note falling 3 bps to 2.26% and the 30-year bond rate decreasing 1 bp to 3.07%.

Tomorrow, the housing market will continue to be in focus as the U.S. economic calendar will bring the release of existing home sales, with the largest portion of the home sales market projected to rise 0.8% month-over-month in April to an annual rate of 5.23 million units. It appears, first time home buyers are being impeded by the lack of existing housing supply for sale, which has driven up prices and crowded out lower income buyers. New home construction is needed to ease the supply issue in many of these markets but the jump in the Housing Market Index—a key leading indicator for housing starts—supports the view that housing is likely to be a brighter light illuminating the economy this year.

Other items set for release on tomorrow’s domestic docket include weekly initial jobless claims, forecasted to increase to a level of 270,000 from the 264,000 posted the week prior, as well as the Philly Fed Manufacturing Index, expected to have risen to a level of 8.0 for May from the 7.5 registered in April, and the Kansas City Fed Manufacturing Index, with economists expecting an increase to -4 for May from -7 in April, with zero representing the demarcation point between expansion and contraction for each respective index. Finally, we will also receive the Index of Leading Economic Indicators, with economists looking for a 0.3% m/m advance in April after ticking 0.2% higher in the month prior.

Europe ticks higher, Asia mixed as Japanese stocks get a boost from an upbeat GDP report

The European equity markets tilted toward the upside, following yesterday’s broad-based gains, despite lingering Greek debt deal uncertainty, while traders digested some corporate and economic data ahead of the release of the April meeting minutes from the U.S. Federal Reserve. Bond yields gained ground, while the euro continued its recent retreat against the U.S. dollar. In economic news, the minutes from the Bank of England’s May policy meeting showed members voted unanimously to keep its benchmark interest rate at a record low of 0.50%, though the decision for two members was “finely balanced.” German wholesale inflation came in cooler than expected for April, while eurozone construction output rebounded for March.

Stocks in Asia finished mixed on the heels of the lackluster session in the U.S. yesterday as the dollar rallied and bond yields moved higher, while sentiment in the region was buoyed by a stronger-than-expected 1Q GDP report. Japan announced a 2.4% quarter-over-quarter annualized pace of growth in 1Q, compared to the 1.6% expansion that was expected, and an acceleration from the downwardly revised 1.1% rise seen in 4Q. Chinese equities were supported by gains in technology issues, while in Australia a favorable read on the nation’s consumer sentiment was overshadowed by some weakness in basic materials stocks.

Market Insights 5/19/2015

Investors Fence Sit Ahead of Fed Minutes

U.S. equities finished mixed and nearly unchanged in choppy trading, as investors appeared somewhat cautious ahead of tomorrow’s release of the Fed minutes, while bond yields and the U.S. dollar moved higher following a higher-than-expected rise in domestic housing construction. Crude oil and gold prices finished lower.

The Markets…

The Dow Jones Industrial Average gained 14 points (0.1%) to 18,312

The S&P 500 Index lost a little over 1 point (0.1%) to 2,128

The Nasdaq Composite fell 8 points (0.2%) to 5,070

In moderate volume, 735 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq

WTI crude tumbled $2.25 to $57.99 per barrel, wholesale gasoline declined $0.04 to $2.00 per gallon

The Bloomberg gold spot price fell $17.02 to $1,208.49 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 1.1% higher at 95.30

Housing construction easily tops forecasts

Housing starts for April jumped 20.2% month-over-month to an annual pace of 1,135,000 units, compared to the Bloomberg forecast of a 1,015,000 unit rate. March’s starts were upwardly revised to an annual pace of 944,000, from the 926,000 rate initially reported. Also, building permits, one of the leading indicators tracked by the Conference Board as it is a gauge of future construction, advanced 10.1% m/m in April to an annual rate of 1,143,000, after March’s modest downward revision to a 1,038,000 rate—from a pace of 1,039,000 units that was originally reported. Economists had expected permits for April to come in at an annual pace of 1,064,000 units.

Housing starts posted the highest annual rate since November 2007, while more permits were issued than at any time since June 2008, per Bloomberg, with single unit construction activity registering m/m and y/y gains. Economic data has been mixed-to-weak over the past few months; but some of the housing-related data has perked up and could be a bright spot for the economy. Leading indicators for housing point to the possibility that y/y growth could move into double-digit territory by the fourth quarter of this year; but we should probably temper those expectations given the reluctance to borrow, still-high home prices, and the possibility of higher mortgage rates.

Treasuries finished lower after reversing to the downside on the housing report, as the yield on the 2-year note rose 3 basis points to 0.61%, while the yields on the 10-year note and the 30-year bond gained 4 bps to 2.28% and 3.07%, respectively.

Tomorrow, the U.S. economic calendar will bring the release of the Federal Reserve’s minutes from its April monetary policy decision, where it held steady on monetary policy, but did remove any date reference as to when any rate hike could occur in its statement. Our long-term view continues to be that the Fed’s approach to tightening monetary policy will be slow and that the potential upside in yields will be limited due to structurally slower economic growth and lower inflation than in the past. Its goal is to “normalize” policy rather than slow down an overheating economy. However, in the near term, investors should expect more volatility as expectations about central bank policies evolve.

Europe gains ground amid Greek deal reports, Asia follows U.S. higher

The European equity markets finished broadly higher, with Greek stocks rising solidly amid comments from the nation’s finance minister suggesting the country is near a deal with its international creditors in order to unlock further bailout aid. Bond yields in the region retreated to help sentiment and the euro was sharply lower following comments from a European Central Bank member that the central bank will slightly front-load bond purchases to bolster liquidity ahead of July and August, a period when the central bank market expects to see low market liquidity. Stocks gained ground despite a report showing German investor confidence for May declined more than expected, while automakers got a boost from a report showing European Union new car registrations rose for a 20th-straight month, per Bloomberg. In other economic news, eurozone consumer price inflation rose m/m in April at a pace that matched expectations, while U.K. consumer price inflation came in a bit cooler than forecasted for last month. Moreover, the eurozone trade surplus for March narrowed more than estimated.

Stocks in Asia finished mostly to the upside on the heels of yesterday’s advance in the U.S. to more record highs, while traders are awaiting tonight’s 1Q GDP report in Japan and China’s manufacturing activity data later in the week. Markets in Japan gained ground, aided by a rebound in department store sales for April and some continued weakness in the yen, while stocks in China jumped, with brokerages and energy companies leading the way, as Bloomberg noted that traders sought out companies that have underperformed amid increased liquidity concerns as the nation faces a flood of IPOs set to hit the market. However, Indian equities declined in choppy trading, pulling back from recent gains, bogged down by automakers and lenders, and Australian markets fell, led by weakness in resource-related issues, despite the minutes from the Reserve Bank of Australia’s May meeting suggesting that the central bank still has scope to further cut interest rates if needed to boost economic growth.

Market Insights 5/18/2015

Markets Notch Records

Notwithstanding an unexpected decline in domestic home builder sentiment and heightened uncertainty in Greece, the U.S. equity markets were able to start the week on a positive note with the Dow and S&P 500 posting record highs.

News on the equity front was focused on a number of M&A deals. Yield on Treasuries returned to rally mode, and the U.S. dollar was markedly higher as well, while gold saw only a modest gain and crude oil prices inched lower.

The Markets…

The Dow Jones Industrial Average advanced 26 points (0.1%) to 18,299

The S&P 500 Index added 6 points (0.3%) to 2,129, only 2 of the 10 S&P 500 sectors finished lower with Consumer Staples -.32% and Materials -.45% among the losers while HealthCare +.59%, Financials +.57%, Technology +.48% and Utilities +.38% led the charge higher.

Small and MidCaps outpaced LargeCaps with the MidCap 400 up .81% and the SmallCap 600 better by nearly 1%.

The Nasdaq Composite gained 30 points (0.6%) to 5,078

In moderate volume, 669 million shares were traded on the NYSE and 1.6 billion shares changed hands on the Nasdaq

WTI crude lost $0.26 to $59.43 per barrel, wholesale gasoline declined $0.02 to $2.04 per gallon

The Bloomberg gold spot price increased $0.69 to $1,225.49 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 1.1% higher at 94.21

Homebuilder sentiment unexpectedly drops

The National Association of Home Builders (NAHB) Housing Market Index showed homebuilder sentiment surprisingly fell in May to 54, from April’s unrevised 56 figure, and compared to the Bloomberg expectation of a rise to 57. Despite the unexpected decline, builder confidence in the new home market remains above 50, which separates good and poor conditions.

The NAHB noted that, “Consumers are exhibiting caution, and want to be on more stable financial footing before purchasing a home.” However, “Overall, the second quarter of 2015 is shaping up to be very solid,” with sales expectations continuing to track upward, mortgage rates remaining low, and house prices being affordable, the NAHB added.

Housing data will be a recurring theme this week, continuing with tomorrow’s look at April housing construction in form of the housing starts and building permits report (economic calendar). Starts are projected to rise 9.9% month-over-month to an annual rate of 1,018,000 units, while permits are projected to gain 2.2% to an annual rate of 1,065,000 units. Household formations surged in Q4 by the largest in over 30 years and y/y, the number of households increased by the most since Q3 2005. This data suggests that more people are leaving the nest to form their own households, another boost for additional home construction and the economy more broadly.

Treasuries finished solidly lower, with yields marching higher, as the yield on the 2-year note rose 2 basis points to 0.56%, the yield on the 10-year note advanced 8 bps to 2.22%, and the 30-year bond rate rose 9 bps to 3.02%.

Europe mostly higher, Asia mixed

The European equity markets finished mostly to the upside, despite bond yields in the region gaining some ground—noticeably in peripheral Eurozone markets—ahead of a busy economic calendar, with reads on inflation, trade and business activity slated for later in the week. Greek default concerns continued to hamstring sentiment as the nation has yet to prove to its international creditors that its reform progress is robust enough to warrant further funds from its bailout deal.

Greek stocks initially saw solid pressure amid headlines suggesting the country needs an agreement by the end of this month as its debt repayment to the International Monetary Fund (IMF) last week has left it on the verge of a default, with more payments coming due, while its banking sector is also facing liquidity issues. However, Greek stocks reversed to the upside in late-day action, with Bloomberg attributing the resiliency to a report that the European Commission is proposing a deal compromise. The economic calendar today was relatively light, with Italy’s trade surplus widening in March.

Stocks in Asia finished mixed ahead of a busy week of global data. Japanese equities rose, aided by some weakness in the yen and a stronger-than-expected read on the nation’s machine orders for March, which came ahead of this week’s report on the country’s 1Q GDP growth. However, festering IPO concerns, a mixed report on property prices, and the lack of expected details on the new Hong Kong/Shenzhen stock exchange connect over the weekend weighed on Chinese stocks, ahead of this week’s preliminary report on May manufacturing activity.

Stocks in India advanced on continued optimism that India’s central bank may have room to further cut interest rates as reports regarding the monsoon season kept inflation concerns at bay, per Bloomberg. Australian markets dropped, as hopes of further interest rate cuts by the nation’s central bank continued to wane, while basic materials stocks saw heavy pressure.