September 13th, 2010 1:07 PM by Mel Samick
The shortened holiday week ended on a quiet note, as there were not many current economic indicators to report. The banking industry was more in focus this past week, starting with the validity of European banks stress test results. Adding to that, Basel III guidelines were made public on Sunday (yesterday), which means banking standards and thresholds will be tightening. In related news, Deutsche Bank will be the first European bank to comply with the new Basel III requirements and is already planning to raise $9 Billion Euros to meet capital requirements.
Investors were on guard as stocks ended the week up slightly, with all major indices gaining nearly .5 percent. By week's end, the S&P closed at 1,109 while the Dow ended the trading week at 10,462. The Beige Book, "aka" the economic report card, for the period covering mid-July through the end of August, compared favorably to investors expectations. Per the Beige Book, there was continued growth in the economy but with higher deceleration compared to previous periods. In other positive news, initial jobless claims for the September 4th week was 451,000 vs. 478,000 in the prior week. For investors, it was too early to predict the future, as the lower numbers could be due to the holiday-shortened week. Treasuries witnessed some volatility last week as the 10-year note closed at 2.7 percent after hitting a recent low of 2.59 percent.
However, for the month of July, the trade gap narrowed by $7.1 billion as exports rose and imports declined. It will definitely help lift third-quarter GDP as well as help manufacturers remain positive about the resumption of export growth. For the month of July, consumer credit data showed that credit fell another $3.6 billion. Over the last six months, consumer credit has been tightening and with the high unemployment rate and economic uncertainty, consumers preferred to restrict spending to necessities only.
The housing market saw another week of mortgage rates rising. At the end of the week, the 5/1 hybrid ARM rate was around 3.25 percent, while the Conforming Fixed 30-year rate was around 4.26 percent. Due to rates rising on Labor Day for the week ending Sept 3rd, total application volume dropped compared to the previous week, while purchase applications went up and refinance applications were down slightly.
In the coming week, the financial sector will be in the news due to the new Basel rules. On the economic calendar, Retail Sales and Business Inventories results are due to be released on Tuesday. Industrial Production on Wednesday will give investors some hint as to economic growth. The Producer Price Index and the Consumer Price Index releases on Thursday and Friday will provide hints as to inflation
Information provided by Amtrust Capital Markets