Friday, September 4, 2009

Weekly Market Update (9/4/09)‏


Employment Report - Nonfarm payrolls declined by 216,000 in August compared to an upwardly revised 276,000 drop in July. The unemployment rate rose to 9.7%, the highest level since June 1983 when the rate was 10.1%. more...

The US Treasury yield curve steepened in the last week of the summer, with 2-year yields dropping 10 basis points (bps) whereas Treasury yields of longer dated maturities remained relatively unchanged. more...

Large-Cap Equities
The stock markets pared back some of its recent gains this week on mixed economic data and a renewed concern of additional bank losses. more...

Corporate Bonds
Investment grade primary activity continued its subdued manner as we made our way through the last several weeks of summer. more...

Mortgage-Backed Securities
Mortgage bonds rallied to their highest level since late spring as the Federal Reserve signaled no end to accommodative monetary policy. more...

Municipal Bonds
The muni market continues its trend of tightening credit spreads and lower long-term yields as investors try to find yield in any avenue available. more...

The high yield market remained relatively quiet this first week of September, with many market participants on the sidelines. more...

Eastern European Equities
The CECE index of equities traded in Central Europe (Czech Republic, Hungary, and Poland) lost -4.6% this week, while the Russian stock index RTS went down -2.4%. more...

Global Bonds and Currencies
Major non-US sovereign bond markets had a notably quiet week with most closing unchanged. more...

Emerging-Market Bonds
Emerging market dollar-pay debt spreads were marginally tighter this week as trading activity remained light ahead of the holiday weekend in the US. more...

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Thursday, September 3, 2009

Market Reflections 9/3/2009

Economic data on Thursday were mixed between flat and firm. Jobless claims show no improvement and point to still heavy payroll losses in tomorrow's big monthly report. The ISM's non-manufacturing report showed strength in output and an odd jump in prices but no change in new orders. The report's composite index points to continued though slowing contraction for the bulk of the economy. Chain-store sales were mostly but not uniformly positive, yet as a whole they point to long awaited, broad-based gains for the retail sales report at mid month.

Traders are reporting the appearance of fear, the result of equity losses in China. Demand for gold and silver are up in part due to concern that heavy profit taking may hit Chinese and U.S. equities this month and next and that talk may emerge for another wave of stimulus measures in the two nations. Gold flirted with $1,000 before settling over $990 for a more than $10 gain. Silver added 70 cents to $16.10. Base metals, which lack a premium as a monetary alternative, continue to fall back but only slightly with copper down a penny to $2.85. Oil ended slightly lower at $68, but natural gas was a big loser, down 50 cents to $2.50 following another weekly injection for inventories. The S&P 500 was little changed, hovering right around 1,000 and ending at 1,003. The dollar index was also little changed, ending under 78.50.

Jobless Claims Released on 9/3/2009 8:30:00 AM For wk8/29, 2009

There has been very little change in initial jobless claims over the past seven weeks, pointing to little change in payroll losses for tomorrow's monthly employment report. Initial claims fell 4,000 to 570,000 in the Aug. 29 week (prior week revised 4,000 higher to 574,000). The four-week average is right at the current week, at 571,250. Continuing claims have been generally moving lower since early July, unfortunately reflecting the expiration of benefits and not necessarily new hiring.

But in a bad sign, continuing claims rose in data for the Aug. 22 week, up 92,000 to 6.234 million. The unemployment rate for insured workers rose 1 tenth to 4.7 percent. There was no significant reaction to the report.

Market Reflections 9/2/2009

FOMC minutes show that policy makers are as confident as the financial markets that the recession has bottomed. But policy makers do worry that the consumer is weak and so have kept their rate policy and asset-purchase policy on hold. Data included a worse-than-expected jobs forecast from ADP, one that got the stock market off to a slow start. The S&P slipped 0.3 percent on the day to end at 994.75.

Gold was the big mover of the day, up nearly $25 to $980 in a major breakout from two months of narrow trading centered at $950. Middle East accounts were behind the gain, buying ahead of seasonal jewelry demand there and in Asia. Silver rose with gold, ending at $15.40 for a 70 cent gain, but other commodities, including copper and oil, were little changed.

Tuesday, September 1, 2009

Market Reflections 9/1/2009

Buy on the rumor and sell on the fact was Tuesday's theme. A very strong ISM manufacturing report, getting an appreciable boost from cash for clunkers, shot past 50 to 52.9, sounding the beginning of recovery in the sector. But a plus 50 reading was already expected and whether cash for clunkers merely pulled activity from future months is an open question. The session's housing data were also strong with another big gain for pending home sales and a big jump for single-family construction. Unit vehicle sales rounded out the good news, jumping more than 20 percent and pointing, tentatively, to gains for the August retail sales report.

But the market wasn't impressed as the S&P fell 2.2 percent to just below 1,000. But the drop isn't worrying investment strategists who say a 5 to 10 percent correction may be in store and would in fact be healthy, setting the market up for big gains further down the road. The dollar benefited from the move out of equities and toward safety with the dollar index up 0.8 percent to 78.84. Most commodities moved lower in line with equities and in line with the rise in the dollar with oil losing about $1-1/2 to end at $68 and copper losing nearly a nickel to $2.80. But strong dollar or not, gold keeps holding firm, ending at $957.

ISM Mfg Index Released on 9/1/2009 10:00:00 AM For August, 2009

The ISM's manufacturing index burst over the dead-even 50 level for the first time since the beginning of the recession, at 52.9 in August vs. 48.9 in July. New orders led the advance, at 64.9 vs. August's 55.3 and pointing to rising business activity in the months ahead. Production was also very strong in August, at 61.9 for a 4 point gain and pointing to gains in durable goods shipments and total manufacturing sales. Backlogs also increased, at 52.5 vs. 50.0 in July. But manufacturers are not stocking up, instead they continue to draw down inventories where the index is a very weak 34.4 vs. 33.5 in July. Note that future gains in the inventories index, a seeming necessity given rising production needs, will help give the overall index a big boost. Respondents in fact think inventories at their customers' firms are too low, with the customer inventories down 3.5 points to 39.0. Deliveries slowed substantially, up more than 5 points to indicate that current production needs are stressing what has become a pared down supply chain. Production activity and the gain in orders has yet to boost employment where the index only inched forward to a still sub-50 level of 46.4.

All the strength here is flowing through to prices where the prices paid index jumped 10 points to 65.0, an indication that buyers are bidding up prices for raw materials. No doubt boosted by cash-for-clunkers and gains in transportation, the manufacturing recovery is on the way and together with the gain in the pending home sales index indicate that two key sectors are on the acceleration. Stocks jumped in immediate reaction to today's 10 o'clock data.
Construction Spending
Released on 9/1/2009 10:00:00 AM For July, 2009
Prior Consensus Consensus Range Actual
Construction Spending - M/M change 0.3 % 0.0 % -0.5 % to 0.3 % -0.2 %
Construction outlays fell in July but showed significant divergence among components as residential outlays rebounded while public and nonresidential construction declined. Overall construction spending edged down 0.2 percent in July after making a partial comeback of 0.1 percent in June. The dip in July came in below the consensus projection for no change. The decline in spending in July was led by a 1.2 percent decrease in private nonresidential outlays while public spending also fell-by 0.7 percent. The good news in the report was that private residential outlays added to the view that the housing sector is recovering with a 2.3 percent boost in July after declining 0.4 percent in June.

The July construction spending report was not as good as expected but equities liked the better-than-expected ISM manufacturing index and pending home sales index which were released at the same time as construction outlays. Overall, housing appears to have turned the corner and likely is in slow recovery. Meanwhile, the public and nonresidential sectors continue their downtrends.

Pending Home Sales Index
Released on 9/1/2009 10:00:00 AM For July, 2009
Prior Actual
Pending Home Sales Index - Level 94.6 12.0 %
Pending Home Sales Index - M/M 3.6 % 3.2 %
Pending home sales continue to improve pointing to extending gains for existing home sales. The pending home sales index rose 3.2 percent extending a long streak of gains and compared with a 3.6 percent rise in June. The year-on-year is very strong at 12.0 percent. Nearly all indications on the residential side, including today's construction spending report, point to accelerating gains in what is very good news for the economic recovery.

Market Reflections 8/31/2009

A 7 percent plunge in the Shanghai stock market, tripped by new concerns that the government will withdraw liquidity from the business sector, reverberated through global markets and the U.S. market where the S&P 500 fell 0.8 percent to just over 1,020. U.S. economic news was upbeat as Chicago purchasers reported no change in business conditions during August, indicating a bottoming in the region's recession and pointing to similar results in this week's ISM reports. Commodities moved with equities with oil closing below $70 at $69.50 and copper falling more than 10 cents to end at $2.84. But gold held firm at $950, firmly underpinned by solid long-term investment demand. The dollar index edged 0.2 percent lower to $78.13.