This past week, investors were operating in a safe mode. Though U.S. economic indicators were suggesting that the domestic economy is on a course of recovery, investors were still looking towards government treasuries as a safe heaven. Global deflation has started showing its effect. On one hand, emerging economies have raised interest rates to slow down their inflation, while on the other, European countries are implementing austerity measures to curb government spending. In either case, if the global economy slows down, economies that are on a course of recovery get hurt the most. In domestic news, the economy is, in fact, on a course of recovery... though the pace has slowed. Minutes from the last FOMC meeting indicate that the Fed is optimistic about a recovery, but will still be watchful, especially when the global economy substantially affects the domestic economy. Though the timing and process of off-loading the Fed's balance sheet is still undecided, most of the FOMC participants wanted to sell agency debt and mortgage-back securities after the first hike in the fed funds target. Inflation was in check for the month of April as the Producer Price Index was down .1% after having jumped to .7% in March. Core PPI (i.e. less energy and food prices) jumped by .2 percent. While increased car prices were the major factor in increased core PPI, decreases in energy costs helped to bring down the overall PPI. The stock market was on a losing streak for most of the previous week -- with the exception of Friday's last half hour of trading -- with all major indices ending in the red by around 5 percent for the week. With oil settling at $70 per barrel, the energy sector was the worst performing sector, losing around 5.4 percent. The Credit market witnessed its worst month so far, as only 49 billion dollars in debt was issued compared to 183 billion dollars from the previous month. The U.S. auto industry received a pleasant surprise when General Motors reported first-quarter profits after emerging from bankruptcy not so long ago. The currency market witnessed a wild swing with the Euro touching a four year low of $1.2144 before settling to $1.2574 at the end of the week. This was mainly due to uncertainty as a result of a partial ban by Germany on some stocks, bonds and sovereign debt. Amid stock market volatility, demand for Government Treasuries rose and the 10 -year Treasury yield dipped to 3.20 percent. Heading in the same direction, mortgage rates also declined; the conforming 5/1 Hybrid ARM rate was around 3.47 percent, while the Conforming Fixed 30-year rate was around 4.67 percent at week's end. Low interest rates in the last couple months along with the tax credit (ended in April) resulted in increased activity in the housing sector. For the month of April, housing starts jumped by 5.8 %. Even though multi-family was down from last month, the single family sector jumped by 10% for April. In the coming week, investors will be looking for more details on Germany's ban on short-sales and U.S. talks with China on Chinese currency valuation. With respect to domestic economic indicators, Existing Home Sales on Monday will reveal more information on housing sector health. With Consumer Confidence news arriving on Tuesday, Durable Goods Orders on Wednesday and GDP on Thursday, investors will have some more insight regarding the pace of economic recovery. Mel Information Provided by Amtrust Bank Capital Markets

The economic news last Monday morning was quite interesting: The S&P futures vs. fair value showing +45.30 and NASDAQ showing +74.50 isn't something that appears in pre-market headlines very often. The market didn't miss the expectations. During the first trading hour, the Dow rose 375 points, the NASDAQ added 96 points, and the S&P gained 43 points, as details of long-awaited relief for European troubles were revealed. European governments, together with the IMF, agreed to create three loan packages totaling approximately $1 trillion to finance European countries in need of liquidity. The Euro immediately soared versus the Dollar on the bailout news, but when euphoria faded toward the end of the week, the European currency sank to a 19-month low and ultimately ended near a 4-year low. Worries over the impact of a stronger Dollar and possible reduction of consumption in Europe that accounts for 15% of U.S. exports resulted in the Dow falling by 163 points on Friday, while other stock market pointers fell by even more on a relative basis. The Dow ended the week at 10,620; well above the previous week's close of 10,380, but still far from the week's high of 10,952. Market swings immediately provoked speculations about the Dow diving once again to 8,500 before it would recover again to reach 11,500. Let us see whether optimistic economic readings, as well as strong government and regulatory response addressing the recent problems, will prove to be positive for the U.S. economy or not. An investigation of the mysterious short-term market free-fall last week unveiled that the money management firm, Waddell & Reed Financial Inc, sold an extraordinary amount of e-mini contracts, which are highly liquid futures providing exposure to the S&P 500 Index. According to Waddell, there was no human error involved. The investigation of the cause eventually led to a discussion of preventive measures. The details of the new uniform circuit breakers mechanism and rules are expected on Monday and may already be available as you are reading this article. Besides new trading rules, there were talks in the press this week of other forms of regulation being imposed on the market, such as credit rating agencies regulation and investigations of Muni-bond issues. As a result, the New York Times posted an article explaining that there's an inherent feeling that everyone on Wall Street is currently "under investigation by someone for something." Wall Street, which generally supported President Obama, feels disillusioned and disappointed by the current situation in the industry, especially since a huge amount of campaign financing originates from this source. The housing prices report in the 1st quarter has indicated an improvement across the country, with 60% of the metropolitan areas trending positive while some of them have even recorded double digit growth. At the same time, the national median house price remains low at $166,100. Unfortunately, foreclosure sales are still very high, along with other distressed properties that make up 36 percent of all sales. MBA data came out mixed on Wednesday, showing an increase in refinance applications due to lower interest rates and a decrease in purchase applications. The U.S. Trade deficit rose 2.5 percent in March, as oil imports offset some growth in exports of goods and services. A rising trade deficit is traditionally considered a positive sign because it signals economic growth. At this time however, higher oil prices made up part of the increase in oil imports. April Retail Sales and Factory Output data released on Friday, as well as Business Inventories, have expanded during the first three months of this year. Together with corporate earnings that were generally strong this season, data hints that recovery is underway, despite broad concerns. The 61st trading day of the first quarter of 2010 claimed to be a perfect quarter by Bank of America, Citigroup, Goldman Sachs and JPMorgan Chase & Company; as each of these entities produced remarkable results over that period of time. As large financial institutions keep booking their great trading profits, it would be really nice if a financial perpetuum mobile was already invented; we wouldn't need to worry whether there is enough value-added activity underlying those profits. Jobless claims fell for the fourth straight week; that is encouraging. At the same time, several job-market related discussions appeared in the news during the past few days. One of them reminds us that some jobs lost during this recent recession will never come back. Those are the jobs lost due to efficiency improvements and jobs lost to international trade inequalities, which in turn is a matter of efficiency too. These jobs are mostly low-skill, low-education jobs such as clerical, customer service or basic manufacturing. That is a long-term trend discussed by more progressive parts of the society; economic downturn just sped up the process. Is it good or bad? That depends on which route we are going to take from here. In his famous 2008 book "Hot, Flat and Crowded," Thomas Friedman wrote that from an early age, he was taught by his parents to appreciate and use what's on his plate, because the huge part of the world population is hungry for that food. Nowadays, he teaches his children to study as hard as possible because there is a large part of the world, well-educated and hardworking, that is hungry for their future job opportunities. At the same time, we can see criticism of approach aimed to raise the level of education in the United States by promoting both better quality and a greater degree of education. It will be interesting to see how analysts view the United States ability to compete in the global market for those very jobs that will make potential rises in manufacturing activity, consumer spending and mortgage market stabilization sustainable. This, in turn, will allow the U.S. to pay down the debt that has propelled the current recovery. I was about to break a good tradition of writing on "Apple" in every preceding Financial Markets article when the news I was looking for came in handy at the very last moment on Friday evening. This time it is not technology or economic news, but rather one of a criminal slant. The story is about the new generation iPhone prototype lost by one of the engineers; later found and sold to a technology review web-site for several thousand dollars. Despite a personal request by Steve Jobs to return the device, it did not prevent the website's editor from posting pictures of the device. As a result, a few people are under investigation, though nobody has been formally charged yet. Several important economic reports will be unveiled next week. Investors will pay particular attention to the Treasury International Capital report, along with Treasury auctions and the Housing Market Index on Monday. Housing Starts and the Producer Price Index will be published on Tuesday; on Wednesday, the Consumer Price Index will be reported and Thursday is a day of Jobless Claims readings. Stay tuned. Mel Information provided by AMtrust Bank Capital Markets