Mel's Blog

May 26 2010 Market News

May 26th, 2010 11:29 AM by Mel Samick

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
Posted in:General
Posted by Mel Samick on May 26th, 2010 11:29 AM

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