HEADLINE NEWS WEEK ENDING 10/02/09
Overview
The US economy shed 263,000 jobs in September, which was below the consensus forecast by nearly 100,000. At the same time, the unemployment rate rose to a 26-year high of 9.8% during the month. more...
US MARKETS
Treasury/Economics
Treasuries traded higher this week, with the intermediate part of the yield curve, mostly 5 year and 7 year yields outperforming all other maturities. more...
Large-Cap Equities
The stock market fell for the second straight week on concerns of a slower than expected economic recovery. more...
Corporate Bonds
Investment grade primary activity continued its recent run as an eclectic mix of issuers tapped the market. more...
Mortgage-Backed Securities
Is the range bound trade over? A relapse in equities and weaker-than-expected economic reports sent bond yields to their lowest levels since May. more...
Municipal Bonds
The municipal bond market turned in a fantastic monthly performance in September. Total return for the month on the broad Barclays Municipal Bond Index ranked as one of the top 3 months in the last 20 years, at 3.6%. more...
High-Yield
After posting the largest gains in the modern history of the high yield market of over 22% in the second quarter, the asset class did not disappoint in the third quarter. more...
INTERNATIONAL MARKETS
Eastern European Equities
The CECE index of equities traded in Central Europe (Czech Republic, Hungary, and Poland) lost -3.7% this week, while the Russian stock index RTS went down -0.1%. more...
Global Bonds and Currencies
Major non-US government bond markets had another positive week, supported by equity market declines and concerns over the sustainability of the global recovery in the wake of some disappointing US data, even though domestic data developments were mixed to positive. more...
Emerging-Market Bonds
Emerging market dollar-pay debt spreads were unchanged this week. Although risk appetite receded as reflected through lower global equity indices, emerging market bonds remained supported by strong inflows into the asset class more...
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Friday, October 2, 2009
Factory Orders
Released on 10/2/2009 10:00:00 AM For August, 2009
Prior Consensus Consensus Range Actual
Factory Orders - M/M change 1.3 % 1.0 % -0.8 % to 1.6 % -0.8 %
Highlights
The manufacturing recovery is having a bumpy lift off. Manufacturing activity first moved higher in June then improved further in July but then dipped back in August. Factory orders for August fell 0.8 percent vs. a 1.4 percent rise in July (1.3 percent first reported) and vs. a 0.9 percent rise in June. August's data were pulled lower by durable goods, down 2.6 percent in the month (revised from an initial 2.4 percent). August orders for non-durable goods make their appearance with this report, up 0.8 percent and reflecting higher prices for oil & coal but not nearly enough to offset the drop in durable goods.
Weakness in durable goods is centered in transportation which is skewed not by motor vehicles, which despite cash-for-clunkers have been steady and which rose 2.0 percent in August, but have been skewed by aircraft where a huge jump in July made for a huge drop in August. Most categories outside of transportation also show month-to-month weakness. Capital goods readings fell back from big gains in July and point to trouble for export data in next week's international trade report. Consumer goods readings were mixed showing weakness for durable goods but strength for nondurables.
Among other data in the report, factory shipments fell 0.3 percent vs. a 0.3 percent rise in July. This particular reading raises the question whether the manufacturing sector actually did dip back into negative territory during August. Unfilled orders fell 0.4 percent while inventories fell 0.8 percent as manufacturers continued to keep costs down. But yesterday's ISM manufacturing report showed a pivotal slowing in the rate of inventory draw, pointing to a month-to-month gain for September inventories in what arguably would mark the end of the inventory correction. The outlook for the manufacturing sector is positive but uncertain as the sector's recovery is proving, as was expected, to be gradual not explosive.
Prior Consensus Consensus Range Actual
Factory Orders - M/M change 1.3 % 1.0 % -0.8 % to 1.6 % -0.8 %
Highlights
The manufacturing recovery is having a bumpy lift off. Manufacturing activity first moved higher in June then improved further in July but then dipped back in August. Factory orders for August fell 0.8 percent vs. a 1.4 percent rise in July (1.3 percent first reported) and vs. a 0.9 percent rise in June. August's data were pulled lower by durable goods, down 2.6 percent in the month (revised from an initial 2.4 percent). August orders for non-durable goods make their appearance with this report, up 0.8 percent and reflecting higher prices for oil & coal but not nearly enough to offset the drop in durable goods.
Weakness in durable goods is centered in transportation which is skewed not by motor vehicles, which despite cash-for-clunkers have been steady and which rose 2.0 percent in August, but have been skewed by aircraft where a huge jump in July made for a huge drop in August. Most categories outside of transportation also show month-to-month weakness. Capital goods readings fell back from big gains in July and point to trouble for export data in next week's international trade report. Consumer goods readings were mixed showing weakness for durable goods but strength for nondurables.
Among other data in the report, factory shipments fell 0.3 percent vs. a 0.3 percent rise in July. This particular reading raises the question whether the manufacturing sector actually did dip back into negative territory during August. Unfilled orders fell 0.4 percent while inventories fell 0.8 percent as manufacturers continued to keep costs down. But yesterday's ISM manufacturing report showed a pivotal slowing in the rate of inventory draw, pointing to a month-to-month gain for September inventories in what arguably would mark the end of the inventory correction. The outlook for the manufacturing sector is positive but uncertain as the sector's recovery is proving, as was expected, to be gradual not explosive.
Employment Situation
Released on 10/2/2009 8:30:00 AM For September, 2009
Prior Consensus Consensus Range Actual
Nonfarm Payrolls - M/M change -216,000 -170,000 -235,000 to -135,000 -263,000
Unemployment Rate - Level 9.7 % 9.8 % 9.6 % to 9.9 % 9.8 %
Average Hourly Earnings - M/M change 0.3 % 0.2 % 0.1 % to 0.3 % 0.1 %
Average Workweek - Level 33.1 hrs 33.1 hrs 33.1 hrs to 33.2 hrs 33.0 hrs
Highlights
The September jobs report was disappointing-but the consensus may have grown too optimistic. In reality, job losses are not nearly as severe as earlier in the recession and the unemployment rate is drifting up slowly as expected. Nonfarm payroll employment in September fell 263,000, following a revised decline of 201,000 in August and a revised decrease of 304,000 in July. The September drop in payroll employment was worse than the consensus forecast for a 170,000 contraction. August and July revisions were down a net 13,000 (the net declines were worse).
Job losses were widespread in both goods-producing and service-providing sectors. By major categories, goods-producing jobs decreased 116,000 in September, following a 132,000 drop the month before. In the latest month, construction jobs fell 64,000 while manufacturing declined 51,000 and mining slipped 1,000. Service-providing losses, however, surged back to a 147,000 fall, after contracting only 69,000 in August. The drop in service-providing jobs was led by trade & transportation, down 60,000, and by government, down 53,000. Trade was tugged down mainly by retail jobs which fell 39,000. Government weakness was led by the non-education component of local government, down 24,000, as revenue shortfalls have forced job cuts despite fiscal stimulus monies.
Since the start of the recession in December 2007, payroll employment has fallen by 7.2 million.
On a year-ago basis, payroll jobs were down 4.2 percent in September-slightly better than down 4.3 percent the previous month.
Wage inflation eased sharply as average hourly earnings in September grew 0.1 percent, following a 0.4 percent gain in August. The consensus had projected a 0.2 percent rise for the latest month. The average workweek slipped to 33.0 hours from 33.1 hours in August, coming in below the market forecast for 33.1 hours.
Turning to the household survey, the civilian unemployment rate continued its uptrend, rising to 9.8 percent from 9.7 percent in August and compared to the market forecast for 9.8 percent. The latest rate is the highest since 1983.
Today's employment report will set equities back as futures were down notably on the release. Bond yields fell. However, the numbers are not dramatically negative and on average over the last few months reflect improvement. It is too early to write off the recovery given that nearly everyone expected a sluggish and choppy recovery.
Market Consensus Before Announcement
Nonfarm payroll employment in August fell 216,000, following a decrease of 276,000 in July and a decline of 463,000 in June. By major categories, goods-producing jobs dropped 136,000 in August, following a 122,000 decrease the month before. The slowing in overall payroll job cuts was due to fewer pink slips in the services sector. Service-providing losses were cut in half with an 80,000 decline after falling 154,000 in July. Wage inflation warmed up a bit-likely due to a jump in the minimum wage. Average hourly earnings in August rose 0.3 percent, matching July's gain.
Definition
The employment situation is a set of labor market indicators based on two separate surveys in this one report. Based on the Household Survey, the unemployment rate measures the number of unemployed as a percentage of the labor force. Other key series come from the Establishment Survey (of business establishments). Nonfarm payroll employment counts the number of paid employees working part-time or full-time in the nation's business and government establishments. The average workweek reflects the number of hours worked in the nonfarm sector. Average hourly earnings reveal the basic hourly rate for major industries as indicated in nonfarm payrolls.
Prior Consensus Consensus Range Actual
Nonfarm Payrolls - M/M change -216,000 -170,000 -235,000 to -135,000 -263,000
Unemployment Rate - Level 9.7 % 9.8 % 9.6 % to 9.9 % 9.8 %
Average Hourly Earnings - M/M change 0.3 % 0.2 % 0.1 % to 0.3 % 0.1 %
Average Workweek - Level 33.1 hrs 33.1 hrs 33.1 hrs to 33.2 hrs 33.0 hrs
Highlights
The September jobs report was disappointing-but the consensus may have grown too optimistic. In reality, job losses are not nearly as severe as earlier in the recession and the unemployment rate is drifting up slowly as expected. Nonfarm payroll employment in September fell 263,000, following a revised decline of 201,000 in August and a revised decrease of 304,000 in July. The September drop in payroll employment was worse than the consensus forecast for a 170,000 contraction. August and July revisions were down a net 13,000 (the net declines were worse).
Job losses were widespread in both goods-producing and service-providing sectors. By major categories, goods-producing jobs decreased 116,000 in September, following a 132,000 drop the month before. In the latest month, construction jobs fell 64,000 while manufacturing declined 51,000 and mining slipped 1,000. Service-providing losses, however, surged back to a 147,000 fall, after contracting only 69,000 in August. The drop in service-providing jobs was led by trade & transportation, down 60,000, and by government, down 53,000. Trade was tugged down mainly by retail jobs which fell 39,000. Government weakness was led by the non-education component of local government, down 24,000, as revenue shortfalls have forced job cuts despite fiscal stimulus monies.
Since the start of the recession in December 2007, payroll employment has fallen by 7.2 million.
On a year-ago basis, payroll jobs were down 4.2 percent in September-slightly better than down 4.3 percent the previous month.
Wage inflation eased sharply as average hourly earnings in September grew 0.1 percent, following a 0.4 percent gain in August. The consensus had projected a 0.2 percent rise for the latest month. The average workweek slipped to 33.0 hours from 33.1 hours in August, coming in below the market forecast for 33.1 hours.
Turning to the household survey, the civilian unemployment rate continued its uptrend, rising to 9.8 percent from 9.7 percent in August and compared to the market forecast for 9.8 percent. The latest rate is the highest since 1983.
Today's employment report will set equities back as futures were down notably on the release. Bond yields fell. However, the numbers are not dramatically negative and on average over the last few months reflect improvement. It is too early to write off the recovery given that nearly everyone expected a sluggish and choppy recovery.
Market Consensus Before Announcement
Nonfarm payroll employment in August fell 216,000, following a decrease of 276,000 in July and a decline of 463,000 in June. By major categories, goods-producing jobs dropped 136,000 in August, following a 122,000 decrease the month before. The slowing in overall payroll job cuts was due to fewer pink slips in the services sector. Service-providing losses were cut in half with an 80,000 decline after falling 154,000 in July. Wage inflation warmed up a bit-likely due to a jump in the minimum wage. Average hourly earnings in August rose 0.3 percent, matching July's gain.
Definition
The employment situation is a set of labor market indicators based on two separate surveys in this one report. Based on the Household Survey, the unemployment rate measures the number of unemployed as a percentage of the labor force. Other key series come from the Establishment Survey (of business establishments). Nonfarm payroll employment counts the number of paid employees working part-time or full-time in the nation's business and government establishments. The average workweek reflects the number of hours worked in the nonfarm sector. Average hourly earnings reveal the basic hourly rate for major industries as indicated in nonfarm payrolls.
Market Reflections 10/1/2009
Disappointment for jobless claims, a less-than-robust ISM manufacturing report and a big plunge in vehicle sales tripped a move toward safety and profit-taking in stocks. The S&P ended at its lows in a rush of late session selling, down 2.6 percent to 1,029. Initial jobless claims did rise but after several weeks of substantial improvement, and ISM data showed steady month-to-month expansion with inventories now kicking in to make up for slowing but still sizable rates of month-to-month growth in orders and production. But vehicle sales have no silver lining, pointing to big trouble for the September retail sales report. Demand for safety helped the dollar, with the dollar index up 0.6 percent to 77.19, and also helped Treasuries where the 10-year yield fell 12 basis points to 3.19 percent.
Wednesday, September 30, 2009
Market Reflections 9/30/2009
The book on second-quarter GDP is now closed showing a mild 0.7 percent decline, improvement that may turn to growth in the third quarter. Other data in the session include a weaker-than-expected showing in ADP data that points to mild disappointment for Friday's jobs report, while the Chicago purchaser report points to out and out disappointment for upcoming manufacturing data.
Safety was the trade for Wednesday with the S&P down 0.3% at 1,057. Oil rallied strongly despite a build in weekly inventories, one however offset by a draw in gasoline stocks. Perhaps more importantly, the data show a fourth month of year-on-year demand growth with September proving the strongest yet at 6 percent in what is hinting at consumer strength. Oil rose more than $3 to $70.25. Gold rose more than $10 to back over $1,000 at 1,008.
Safety was the trade for Wednesday with the S&P down 0.3% at 1,057. Oil rallied strongly despite a build in weekly inventories, one however offset by a draw in gasoline stocks. Perhaps more importantly, the data show a fourth month of year-on-year demand growth with September proving the strongest yet at 6 percent in what is hinting at consumer strength. Oil rose more than $3 to $70.25. Gold rose more than $10 to back over $1,000 at 1,008.
Tuesday, September 29, 2009
Market Reflections 9/29/2009
Consumer confidence edged back in September as consumers expressed deepening pessimism over the jobs market and their income outlook. But the markets, awaiting Friday's jobs report, held steady in quiet trading. The S&P fell 0.2 percent to end at 1,060. The dollar index firmed 0.2 percent to end at 77.07 while commodities were little changed with oil ending at $66.50 and gold at $990.
Mistakes Traders Make
An interesting survey has just found its way into my inbox, courtesy of Ratio Trading. The survey of more than 500 experienced futures brokers asked what, in their experience, caused most traders to lose money. There are some repetitions in the list, but it is nevertheless a worthwhile exercise to give it a quick read to again remind ourselves of the many investment pitfalls out there.
1. Many futures traders trade without a plan. They do not define specific risk and profit objectives before trading. Even if they establish a plan, they “second guess” it and don’t stick to it, particularly if the trade is a loss. Consequently, they overtrade and use their equity to the limit (are undercapitalized), which puts them in a squeeze and forces them to liquidate positions.
Usually, they liquidate the good trades and keep the bad ones.
2. Many traders don’t realize the news they hear and read has already been discounted by the market.
3. After several profitable trades, many speculators become wild and aggressive. They base their trades on hunches and long shots, rather than sound fundamental and technical reasoning, or put their money into one deal that “can’t fail.”
4. Traders often try to carry too big a position with too little capital, and trade too frequently for the size of the account.
5. Some traders try to “beat the market” by day trading, nervous scalping, and getting greedy.
6. They fail to pre-define risk, add to a losing position, and fail to use stops.
7 .They frequently have a directional bias; for example, always wanting to be long.
8. Lack of experience in the market causes many traders to become emotionally and/or financially committed to one trade, and unwilling or unable to take a loss. They may be unable to admit they have made a mistake, or they look at the market on too short a time frame.
9. They overtrade.
10. Many traders can’t (or don’t) take the small losses. They often stick with a loser until it really hurts, then take the loss. This is an undisciplined approach…a trader needs to develop and stick with a system.
11. Many traders get a fundamental case and hang onto it, even after the market technically turns. Only believe fundamentals as long as the technical signals follow. Both must agree.
12. Many traders break a cardinal rule: “Cut losses short. Let profits run.”
13. Many people trade with their hearts instead of their heads. For some traders, adversity (or success) distorts judgment. That’s why they should have a plan first, and stick to it.
14. Often traders have bad timing, and not enough capital to survive the shake out.
15. Too many traders perceive futures markets as an intuitive arena. The inability to distinguish between price fluctuations which reflect a fundamental change and those which represent an interim change often causes losses.
16. Not following a disciplined trading program leads to accepting large losses and small profits. Many traders do not define offensive and defensive plans when an initial position is taken.
17. Emotion makes many traders hold a loser too long. Many traders don’t discipline themselves to take small losses and big gains.
18. Too many traders are under financed, and get washed out at the extremes.
19. Greed causes some traders to allow profits to dwindle into losses while hoping for larger profits.
This is really a lack of discipline. Also, having too many trades on at one time and overtrading for the amount of capital involved can stem from greed.
20. Trying to trade inactive markets is dangerous.
Source: Ratio Trading, September 4, 2009.
1. Many futures traders trade without a plan. They do not define specific risk and profit objectives before trading. Even if they establish a plan, they “second guess” it and don’t stick to it, particularly if the trade is a loss. Consequently, they overtrade and use their equity to the limit (are undercapitalized), which puts them in a squeeze and forces them to liquidate positions.
Usually, they liquidate the good trades and keep the bad ones.
2. Many traders don’t realize the news they hear and read has already been discounted by the market.
3. After several profitable trades, many speculators become wild and aggressive. They base their trades on hunches and long shots, rather than sound fundamental and technical reasoning, or put their money into one deal that “can’t fail.”
4. Traders often try to carry too big a position with too little capital, and trade too frequently for the size of the account.
5. Some traders try to “beat the market” by day trading, nervous scalping, and getting greedy.
6. They fail to pre-define risk, add to a losing position, and fail to use stops.
7 .They frequently have a directional bias; for example, always wanting to be long.
8. Lack of experience in the market causes many traders to become emotionally and/or financially committed to one trade, and unwilling or unable to take a loss. They may be unable to admit they have made a mistake, or they look at the market on too short a time frame.
9. They overtrade.
10. Many traders can’t (or don’t) take the small losses. They often stick with a loser until it really hurts, then take the loss. This is an undisciplined approach…a trader needs to develop and stick with a system.
11. Many traders get a fundamental case and hang onto it, even after the market technically turns. Only believe fundamentals as long as the technical signals follow. Both must agree.
12. Many traders break a cardinal rule: “Cut losses short. Let profits run.”
13. Many people trade with their hearts instead of their heads. For some traders, adversity (or success) distorts judgment. That’s why they should have a plan first, and stick to it.
14. Often traders have bad timing, and not enough capital to survive the shake out.
15. Too many traders perceive futures markets as an intuitive arena. The inability to distinguish between price fluctuations which reflect a fundamental change and those which represent an interim change often causes losses.
16. Not following a disciplined trading program leads to accepting large losses and small profits. Many traders do not define offensive and defensive plans when an initial position is taken.
17. Emotion makes many traders hold a loser too long. Many traders don’t discipline themselves to take small losses and big gains.
18. Too many traders are under financed, and get washed out at the extremes.
19. Greed causes some traders to allow profits to dwindle into losses while hoping for larger profits.
This is really a lack of discipline. Also, having too many trades on at one time and overtrading for the amount of capital involved can stem from greed.
20. Trying to trade inactive markets is dangerous.
Source: Ratio Trading, September 4, 2009.
http://finance.yahoo.com/tech-ticker/article/337749/Bullish-Today-Marc-Faber-Is-Highly-Confident-the-Future-Will-Be-Very-Bleak?tickers=^DJI
One view of the future from Marc Faber: (link to video above)
Bullish Today, Marc Faber Is "Highly Confident" the Future Will Be Very Bleak
Posted Sep 22, 2009 07:30am EDT by Aaron Task in Investing, Newsmakers
Related: ^DJI, ^GSPC, EEM, FXI, VNM, EWZ, SPY
"The future will be a total disaster, with a collapse of our capitalistic system as we know it today, wars, massive government debt defaults and the impoverishment of large segments of Western society," Marc Faber writes in the September issue of The Gloom, Boom & Doom Report.
A statement like that pretty much speaks for itself, but it's a bit more complicated than appears on first blush.
Faber has been bullish -- especially on commodities and emerging market stocks -- for some time now and believes the current global recovery trade will last another two-to-three years, as discussed in more detail in a forthcoming clip. But he has major long-term concerns about the dollar's long-term viability given rising U.S. deficits, massive unfunded mandates and the fact "we have a money-printer at the Fed."
This combination will eventually lead to runaway inflation, wholesale debasement of the dollar, and a major lowering of living standards for most Americans and many Europeans as well, says Faber, who is "highly confident" in this grim prediction
Here is a contrasting view from Henry Blodgett (linked here http://www.businessinsider.com/henry-blodget-everyone-thinks-interest-rates-are-going-higher-2009-9)
Everyone Thinks Interest Rates Are Going Higher
Henry Blodget|Sep. 28, 2009, 8:01 AM
The consensus is almost always wrong, which is why today's conventional wisdom that interest rates will drift higher merits examination.
If the consensus is wrong this time, too, it means one of two things:
Interest rates will scream higher, clobbering adjustable-rate debtors and killing the economy.
Interest rates will continue to drift lower, as deflation takes hold.
We continue to believe we'll get hyper-inflation at some point (option 1), because we think the Fed will be more worried about killing the recovery than controlling inflation and will therefore err on the side of the former.
That said, right now, the prevailing trend clearly is deflation. And as Japan has showed, the spate of deflation before the hyper-inflation takes hold can last a while.
Why deflation? Despite the sequential uptick in house prices in the past few months, we still don't think we've seen the bottom. The banks are still facing huge losses in commercial real estate, which means they're likely to keep hoarding their capital and not inject new loans into the economy. This should restrain the growth of the money supply. Consumers are starting to save and retiring debt, which should rein in their spending (and, consequently, trigger price declines to try to entice them). We still have huge slack in our manufacturing industries--capacity utilization is very low.
All of which is to say... We wouldn't be surprised if the obvious trade here--interest rates will drift higher as the economy recovers--is wrong.
One view of the future from Marc Faber: (link to video above)
Bullish Today, Marc Faber Is "Highly Confident" the Future Will Be Very Bleak
Posted Sep 22, 2009 07:30am EDT by Aaron Task in Investing, Newsmakers
Related: ^DJI, ^GSPC, EEM, FXI, VNM, EWZ, SPY
"The future will be a total disaster, with a collapse of our capitalistic system as we know it today, wars, massive government debt defaults and the impoverishment of large segments of Western society," Marc Faber writes in the September issue of The Gloom, Boom & Doom Report.
A statement like that pretty much speaks for itself, but it's a bit more complicated than appears on first blush.
Faber has been bullish -- especially on commodities and emerging market stocks -- for some time now and believes the current global recovery trade will last another two-to-three years, as discussed in more detail in a forthcoming clip. But he has major long-term concerns about the dollar's long-term viability given rising U.S. deficits, massive unfunded mandates and the fact "we have a money-printer at the Fed."
This combination will eventually lead to runaway inflation, wholesale debasement of the dollar, and a major lowering of living standards for most Americans and many Europeans as well, says Faber, who is "highly confident" in this grim prediction
Here is a contrasting view from Henry Blodgett (linked here http://www.businessinsider.com/henry-blodget-everyone-thinks-interest-rates-are-going-higher-2009-9)
Everyone Thinks Interest Rates Are Going Higher
Henry Blodget|Sep. 28, 2009, 8:01 AM
The consensus is almost always wrong, which is why today's conventional wisdom that interest rates will drift higher merits examination.
If the consensus is wrong this time, too, it means one of two things:
Interest rates will scream higher, clobbering adjustable-rate debtors and killing the economy.
Interest rates will continue to drift lower, as deflation takes hold.
We continue to believe we'll get hyper-inflation at some point (option 1), because we think the Fed will be more worried about killing the recovery than controlling inflation and will therefore err on the side of the former.
That said, right now, the prevailing trend clearly is deflation. And as Japan has showed, the spate of deflation before the hyper-inflation takes hold can last a while.
Why deflation? Despite the sequential uptick in house prices in the past few months, we still don't think we've seen the bottom. The banks are still facing huge losses in commercial real estate, which means they're likely to keep hoarding their capital and not inject new loans into the economy. This should restrain the growth of the money supply. Consumers are starting to save and retiring debt, which should rein in their spending (and, consequently, trigger price declines to try to entice them). We still have huge slack in our manufacturing industries--capacity utilization is very low.
All of which is to say... We wouldn't be surprised if the obvious trade here--interest rates will drift higher as the economy recovers--is wrong.
Sunday, September 27, 2009
Market Reflections 9/28/2009
Mergers headed Monday's news including multi-billion deals involving Xerox and Abbott Laboratories. The S&P gained 1.8 percent to 1,062 but volume was low given the Yom Kippur holiday. The dollar index firmed 0.5 percent to 76.99 after European Central Bank chief Jean-Claude Trichet stressed the importance of a strong dollar. Another missile test by Iran added some premium to oil which ended $1 higher at $67. Gold was little changed at just above $990.
Friday, September 25, 2009
Market Reflections 9/24/2009
Jobless claims showed solid improvement but were overshadowed by disappointment in existing home sales which ended a streak of gains. The dip in existing home sales played into defensiveness ahead of the G20 meeting. Calls from Italian Prime Minister Berlusconi to limit market speculation made for big declines across commodities including oil which lost $2-1/2 to $66.00 and gold which lost nearly $20 to $995. The move to safety was a big plus for the dollar index which rose 0.6 percent to 76.90. The S&P fell 1 percent to 1,050. Treasury yields edged lower with demand at the 7-year auction especially strong. The 7-year yield ended at 2.99 percent, 1-1/2 basis points lower than the auction's stop-out rate.
Thursday, September 24, 2009
Market Reflections 9/23/2009
The only surprise in the FOMC announcement was the extension of mortgage-backed and agency repurchases to the end of the first quarter, a move aimed at easing the risk of a yield spike when the Fed finally exits the market. The programs are still capped at $1.25 trillion for mortgage-backed securities and $200 billion for agencies. The $300 billion Treasury purchase program will wind down by the end of next month as previously announced. Demand for Treasuries picked up following the statement which included a favorable outlook for inflation. Yields edged back with the 7-year note ending at 3.04 percent. The Treasury will auction $29 billion of 7-year notes tomorrow, ending a record week of supply.
The FOMC statement did not include an exit strategy for quantitative easing. But commodities showed very little reaction in a clear indication that inflation expectations remain stable. Gold did pop up more than $5 in immediate reaction to the statement but hit resistance at $1,020, a level it's hit several times over the past week. The dollar index showed little reaction, rising off session lows to end fractionally higher at 76.21. Stocks edged higher with the S&P once again making a new 2009 high before slipping at the close to end 1 percent lower at 1,060.
The FOMC statement did not include an exit strategy for quantitative easing. But commodities showed very little reaction in a clear indication that inflation expectations remain stable. Gold did pop up more than $5 in immediate reaction to the statement but hit resistance at $1,020, a level it's hit several times over the past week. The dollar index showed little reaction, rising off session lows to end fractionally higher at 76.21. Stocks edged higher with the S&P once again making a new 2009 high before slipping at the close to end 1 percent lower at 1,060.
Tuesday, September 22, 2009
Market Reflections 9/22/2009
Upbeat company news filled Tuesday's session, helping the S&P to rise 0.7 percent to 1071. Intel, which raised guidance in July and August, said global PC demand is proving stronger than expected and that PC shipments may actually rise this year. Cash-for-clunkers may have come to an end but General Motors is adding shifts and recalling 2,400 factory workers. The nation's largest used-car dealer, CarMax, got a huge lift from cash-for-clunkers even though used cars were not included in the program. But the program did drive traffic into its dealerships. Lowe's was also in the news, predicting sales growth next year on strong do-it-yourself demand. Lowe's is counting on improving home prices to give it a lift. The Federal Housing Finance Agency's home price index rose 0.5 percent in June. Other data included very weak chain-store reports that point to trouble for September retail sales.
The biggest story in the session was the dollar which is hitting new 12-month lows, at 76.07 for the dollar index, down 0.9 percent on the day. Risk appetite is behind the drop which is driving up demand for commodities, especially in China which many say is stockpiling commodities as a hedge against its enormous dollar holdings and holdings of U.S. Treasuries. Oil rose, gold rose, copper rose. Treasuries got a lift from a very strong 2-year auction, raising talk that Chinese demand for Treasuries, at least for now, remains strong. The 2-year yield fell to 0.96 percent, more than 4 basis points below the auction's high yield.
The biggest story in the session was the dollar which is hitting new 12-month lows, at 76.07 for the dollar index, down 0.9 percent on the day. Risk appetite is behind the drop which is driving up demand for commodities, especially in China which many say is stockpiling commodities as a hedge against its enormous dollar holdings and holdings of U.S. Treasuries. Oil rose, gold rose, copper rose. Treasuries got a lift from a very strong 2-year auction, raising talk that Chinese demand for Treasuries, at least for now, remains strong. The 2-year yield fell to 0.96 percent, more than 4 basis points below the auction's high yield.
Monday, September 21, 2009
Market Reflections 9/21/2009
Strength in the dollar was the highlight of a quiet Monday session. Talk in the stock market is centering on how rare this year's rally is, showing no correction despite the 60 percent run-up. The S&P 500, where more than 90 percent of the stocks are trading above their 200-day moving average, slipped 0.3 percent to end at 1,064.
Economic data were limited to the index of leading economic indicators which continues to point to strength ahead and where the coincident index is pointing to July as the economic pivot. Risk that the G20 may talk up the dollar later this week tripped short covering, pushing the dollar index up 0.4 percent to 76.78. The rise in the dollar hurt oil which lost more than $2 to end at $69.43. Gold and silver appear to have hit resistance, ending at $1,004 and $16.85.
Economic data were limited to the index of leading economic indicators which continues to point to strength ahead and where the coincident index is pointing to July as the economic pivot. Risk that the G20 may talk up the dollar later this week tripped short covering, pushing the dollar index up 0.4 percent to 76.78. The rise in the dollar hurt oil which lost more than $2 to end at $69.43. Gold and silver appear to have hit resistance, ending at $1,004 and $16.85.
Friday, September 18, 2009
Weekly Market Update (9/18/09)
HEADLINE NEWS WEEK ENDING 9/18/09
Overview
The steeper-than-expected increase in August retail sales signals that consumer spending may be on the road to recovery. more...
US MARKETS
Treasury/Economics
Treasuries traded lower this week, with 5-year yields underperforming all other maturities on the yield curve. more...
Large-Cap Equities
The stock market continued to rally this week on stronger-than-expected retail sales data and analyst earnings upgrades. more...
Corporate Bonds
Investment grade primary activity continued its blazing pace this week as investors bought anything they could get their hands on. more...
Mortgage-Backed Securities
Mortgages modestly outperformed Treasuries in the rally. Thirty-year current coupon spreads were tighter by 4 basis points from the previous week as steady demand trumped originator supply. more...
Municipal Bonds
Yields on municipal bonds moved lower across all maturities this week. Yields on bonds maturing in 10 years dropped 6 basis points, to 2.73%. more...
High-Yield
As the equity markets continue to counter the trend of historically weak Septembers and as the recent economic data has been largely positive, the high yield market is benefitting from these positive trends and has been able to maintain its strong momentum. more...
INTERNATIONAL MARKETS
Eastern European Equities
The CECE index of equities traded in Central Europe (Czech Republic, Hungary, and Poland) gained +3.4% this week, while the Russian stock index RTS went up +4.1%. more...
Global Bonds and Currencies
Most major non-US sovereign bond markets ceded ground over the past week, broadly in line with losses in US Treasuries. more...
Emerging-Market Bonds
Emerging market bonds continued to outperform US treasuries this week as spreads tightened by 35 basis points. more...
For more information, please contact 800 5-PAYDEN or visit payden.com.
If you have difficulties viewing this e-mail and would prefer the Weekly Market Update in plain text format, please e-mail us at paydenrygel@payden-rygel.com. To unsubscribe from this email, please email us at unsubscribe@payden-rygel.com.
Have a great weekend!
All rights reserved. Legal terms. Payden & Rygel respects your privacy. Privacy policy.
The investment strategy and investment management information presented on this email and related Web site, payden.com, should not be construed to be formal financial planning advice or the formation of a financial manager/client relationship. Payden.com is an informative Web site designed to provide information to the general public based on our recommendations of investment management and investment strategies and is not designed to be representative of your own financial needs. Nor does the information contained herein constitute financial management advice. The firm makes no warranty or representation regarding the accuracy or legality of any information contained in this Web site, and assumes no liability for the use of said information. Be advised that as Internet communications are not always confidential, you provide our Web site your personal information at your own risk. Please do not make any decisions about any investment management or investment strategy matter without consulting with a qualified professional.
Overview
The steeper-than-expected increase in August retail sales signals that consumer spending may be on the road to recovery. more...
US MARKETS
Treasury/Economics
Treasuries traded lower this week, with 5-year yields underperforming all other maturities on the yield curve. more...
Large-Cap Equities
The stock market continued to rally this week on stronger-than-expected retail sales data and analyst earnings upgrades. more...
Corporate Bonds
Investment grade primary activity continued its blazing pace this week as investors bought anything they could get their hands on. more...
Mortgage-Backed Securities
Mortgages modestly outperformed Treasuries in the rally. Thirty-year current coupon spreads were tighter by 4 basis points from the previous week as steady demand trumped originator supply. more...
Municipal Bonds
Yields on municipal bonds moved lower across all maturities this week. Yields on bonds maturing in 10 years dropped 6 basis points, to 2.73%. more...
High-Yield
As the equity markets continue to counter the trend of historically weak Septembers and as the recent economic data has been largely positive, the high yield market is benefitting from these positive trends and has been able to maintain its strong momentum. more...
INTERNATIONAL MARKETS
Eastern European Equities
The CECE index of equities traded in Central Europe (Czech Republic, Hungary, and Poland) gained +3.4% this week, while the Russian stock index RTS went up +4.1%. more...
Global Bonds and Currencies
Most major non-US sovereign bond markets ceded ground over the past week, broadly in line with losses in US Treasuries. more...
Emerging-Market Bonds
Emerging market bonds continued to outperform US treasuries this week as spreads tightened by 35 basis points. more...
For more information, please contact 800 5-PAYDEN or visit payden.com.
If you have difficulties viewing this e-mail and would prefer the Weekly Market Update in plain text format, please e-mail us at paydenrygel@payden-rygel.com. To unsubscribe from this email, please email us at unsubscribe@payden-rygel.com.
Have a great weekend!
All rights reserved. Legal terms. Payden & Rygel respects your privacy. Privacy policy.
The investment strategy and investment management information presented on this email and related Web site, payden.com, should not be construed to be formal financial planning advice or the formation of a financial manager/client relationship. Payden.com is an informative Web site designed to provide information to the general public based on our recommendations of investment management and investment strategies and is not designed to be representative of your own financial needs. Nor does the information contained herein constitute financial management advice. The firm makes no warranty or representation regarding the accuracy or legality of any information contained in this Web site, and assumes no liability for the use of said information. Be advised that as Internet communications are not always confidential, you provide our Web site your personal information at your own risk. Please do not make any decisions about any investment management or investment strategy matter without consulting with a qualified professional.
Canadian Royalty Trusts General Information
Canadian Royalty trusts are a different animal than U.S. Royalty Trusts. First, they renew their holdings and operate more like an oil and gas company than does a U.S. Royalty Trust. Generally the Canadian trusts do not do exploratory drilling. When they do drilling it would generally be to increase production of their existing fields and holdings. Most of the Canadian royalty trusts provide dividend payments which are based on the oil and gas production. Royalty trusts pay monthly or quarterly income that varies over time as the production of their underlying assets varies. Payments to unitholders will also vary with the market price of oil and natural gas. As Canadian Royalty Trusts replenish their reserves (versus U.S royalty trusts that do not replenish their reserves), the distributions of Canadian royalty trusts are generally considered to be eligible for the 15% tax rate. We have not found any official confirmation of the eligibility of Canadian Royalty Trusts for the 15% tax rate and the potential investor should confirm this eligibility from other sources. On February 25, 2005 the Government of Canada passed Bill C-33. Under the terms of Bill C-33, commencing January 1, 2005 a non-refundable withholding tax of 15% will be applied to the entire distribution paid to U.S. residents by "Canadian Royalty Trusts", including both the taxable and return of capital portions of the distributions. Similarly, non-residents of countries with whom there is no reciprocal tax treaty with Canada will be subject to a non-refundable withholding tax of 25% on the entire distribution paid. These withholding taxes will be applied uniformly to units held in both taxable and home jurisdiction tax-exempt accounts. Non-resident unit holders are strongly advised to consult a resident tax advisor to determine the deductibility of these taxes in their resident jurisdiction. This Canadian law means that tax exempt accounts such as IRA's will be subject to the 15% withholding and that the recovery of the Canadian withholding amounts will be probably difficult or impossible to achieve making Canadian Royalty Trusts a questionable choice for tax exempt accounts such as IRAs. Taxable accounts should be able to claim the 15% Canadian withholding as a credit on their U.S. income tax return and therefore easily recover the withholding amount.
Thursday, September 17, 2009
Market Reflections 9/17/2009
Initial jobless claims came in well below expectations, leading to a run of revisions to monthly payroll forecasts which are centering at a decline a bit under 200,000 in what would be another incremental improvement. Housing starts data were mixed but aren't derailing expectations for continued recovery in housing.
The S&P 500 slipped 0.3 percent to 1,065 in narrow trading. Though markets were quiet during the session there's heavy debate whether the historic run from 666 is way too much. Many say yes but not Federated Securities which argues the "real" market low hit in October at 840, when the greatest number of shares hit extreme lows, not just financials as in March. Given the 840 base, Federated says the six-month gain is not outsized for the early stages of economic recovery. Commodities were steady with oil ending at $72.50 and gold at $1,016. The dollar index was little changed at 76.26.
The S&P 500 slipped 0.3 percent to 1,065 in narrow trading. Though markets were quiet during the session there's heavy debate whether the historic run from 666 is way too much. Many say yes but not Federated Securities which argues the "real" market low hit in October at 840, when the greatest number of shares hit extreme lows, not just financials as in March. Given the 840 base, Federated says the six-month gain is not outsized for the early stages of economic recovery. Commodities were steady with oil ending at $72.50 and gold at $1,016. The dollar index was little changed at 76.26.
Wednesday, September 16, 2009
Market Reflections 9/16/2009
Industrial production showed a second month of strong gains for manufacturing, pointing to recovery as early as July and echoing Ben Bernanke's comments that the recession is probably over. Manufacturing isn't the only sector on the mend. Housing data continue to show gains, this time it was the homebuilders index which posted a third straight monthly increase. The CPI was skewed higher by energy prices and didn't see much effect from cash-for-clunkers, leading a Bureau of Labor Department official to argue that dealers must have pocketed some of the stimulus.
The S&P rose 1.5 percent to an 11-month high of 1,068, but the central focus of the markets is probably the dollar which continues to decline. The dollar index fell 0.4 percent to end at a new 12-month low of 76.19. The weak dollar is helping commodities including gold which ended near $1,020 with silver continuing to outpace gold's gains, ending at $17.40 for a nearly $1 jump on the day. Oil, up more than $1 to $17.25, got a special lift from a large draw in weekly crude stocks.
The S&P rose 1.5 percent to an 11-month high of 1,068, but the central focus of the markets is probably the dollar which continues to decline. The dollar index fell 0.4 percent to end at a new 12-month low of 76.19. The weak dollar is helping commodities including gold which ended near $1,020 with silver continuing to outpace gold's gains, ending at $17.40 for a nearly $1 jump on the day. Oil, up more than $1 to $17.25, got a special lift from a large draw in weekly crude stocks.
Market Reflections 9/15/2009
Retail sales were expected to be strong -- and that's what they proved to be showing wide strength in August outside of cash for clunkers. But whether this strength will continue is uncertain given continuing losses in the jobs market. Producer prices showed a big jump but one related to month-to-month swings in oil. Equities got only a mild lift from the retail sales results with the S&P 500 up 0.3 percent to 1,052. Commodities firmed with oil regaining $2 to $71 and gold digging in above $1,000, ending at $1,008. The dollar index dipped 0.2 percent to 76.50.
Tuesday, September 15, 2009
Economic Results
The August Producer Price Index came in with a 1.7% month-over-month increase, which is better than the 0.8% monthly increase that economists, on average, had come to expect after the index posted a 0.9% month-over-month decline in July. Excluding food and energy, producer prices increased 0.2% month-over-month, which is a bit more than the 0.1% monthly increase that was widely expected. The previous month's data showed that prices had slipped 0.1%. Advance retail sales for August made a strong 2.7% increase. They had been expected to increase 1.9%. The increase marks a sharp upturn from the downwardly revised 0.2% decline that was registered in July. Excluding autos, retail sales were up a more modest 1.1% in August. The consensus called for a 0.4% increase. Still, the sales less autos figure marked a considerable improvement from the 0.5% decline that was made in July. Last on the list is the Empire Manufacturing Survey, which came in at 18.9 for September. That marks its sixth straight month of improvement. It was also better than the reading of 15.0 that was widely expected.
Market Reflections 9/14/2009
President Obama used the anniversary of the Lehman Brothers collapse to say the need for government involvement in the markets is waning. Boosted by building reports of possible mergers, the S&P rallied 0.6 percent to 1,049 and showed no reaction to a brewing trade dispute after the U.S. placed tariffs on Chinese-made tires. The dollar was little changed but at least didn't weaken further with the dollar index up 0.1 percent at 76.70. Most commodities were little changed with gold holding at $1,000 and oil ending at $69.00. Natural gas was an exception, jumping 15% off deep lows on short-covering ahead of winter and on upbeat comments from Goldman Sachs.
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