The Weekly Market Snapshot from Frazier Allen for the week of November 14th

Market Commentary by Scott J. Brown, Ph.D., Chief Economist

Anxieties about Europe intensified as borrowing costs in Italy ramped up, generating worries about the country’s ability to roll over its existing debt. U.S. investors relaxed toward the end of the week on signs that the Italian government was making some progress on austerity efforts. However, a further meltdown in Italy is a huge risk for the euro zone and for the global financial system. Much depends on whether the ECB will signal a more substantial backstop for Italian debt, but that does not seem likely at this point.

The economic data calendar was sparse. The trade deficit was narrower than expected in September, implying (all else equal) an upward revision to the third quarter GDP growth figure (+2.5% in the advance estimate). However, wholesale inventories were much lower than anticipated, implying (all else equal) and downward revision to the GDP estimate. Consumer sentiment improved in the mid-November assessment. Jobless claims moved below the 400,000 level, but the figures are a bit suspect at this time of year due to difficulties in the seasonal adjustment. [Read more]

The Weekly Market Snapshot from Frazier Allen for the week of October 23rd

Market Commentary by Scott J. Brown, Ph.D., Chief Economist

The economic data were mixed, but consistent with lackluster-to-moderate growth in the near term (no recession). Headline inflation figures for August were boosted by higher food and energy costs, but the core CPI rose modestly. The 2012 adjustment to Social Security payments will be 3.6%, following no change in the last two years. Housing starts jumped 15% in September, reflecting the usual volatility in the multi-family sector – single-family building permits, the key figure in the report, edged down 0.2%.

The financial markets looked past the economic data, focusing instead on earnings reports and Europe. European leaders said that a plan to address the region’s problems would not be finished by Sunday, but may be completed following a second summit, by Wednesday at the earliest. The global markets have reacted to reports of bickering as the plan is cobbled together, but remains encouraged by the strong rhetoric by Germany’s Merkel and France’s Sarkozy. [Read more]

The Weekly Market Snapshot from Frazier Allen for the week of October 9th

Market Commentary by Scott J. Brown, Ph.D., Chief Economist

The economic data were mixed, but consistent with lackluster-to-moderate growth in the near term. Unit auto sales rose more than expected in September. Nonfarm payrolls rose by 103,000 (more than expected, but the increase including the return of 45,000 workers who were on strike in August), with a net upward revision of +99,000 for July and August. The unemployment rate held steady, but would have edged lower if not for an increase in labor force participation (the employment-population ratio edged up, but has been little changed over the last year. Chairman Bernanke said that the Fed’s asset maturity program (Operation Twist) should “put downward pressure on longer-term interest rates and help make broader financial conditions more supportive of economic growth.” He told lawmakers to tighten the federal budget over the long term, but cautioned them “to avoid fiscal actions that could impede the ongoing economic recovery.” [Read more]

The Weekly Market Snapshot from Frazier Allen for the week of October 2nd

Market Commentary by Scott J. Brown, Ph.D., Chief Economist

The news out of Europe was better. Leaders expressed a greater resolve to overcome the region’s difficulties and keep the euro intact. Germany’s parliament approved (by a wide margin) an expansion of the European Financial Stability Facility. However, the strains remain. There is a long and bumpy path ahead and the markets are expected to react to the news day by day.

U.S. economic data were mixed, but generally better than anticipated. The government’s third estimate of second quarter GDP growth was revised higher, to a 1.3% annual rate vs. +1.0% in the second estimate. The second quarter is pretty much ancient history at this point, but consumer spending and business fixed investment were both revised higher. The advance report on durable goods orders showed a pickup in shipments of nondefense capital goods ex-aircraft in August – suggesting that business fixed investment will post a strong gain in 3Q11 (not surprising, as corporate profits are a major driver of capital spending, and profits were at a record high in 2Q11). Consumer confidence remained depressed in September (after sinking in August), with continued pessimism on jobs. Weekly jobless claims fell unexpectedly in the latest week, but seasonal adjustment makes the figures unreliable. [Read more]

The Weekly Market Snapshot from Frazier Allen for the week of September 18th

Market Commentary by Scott J. Brown, Ph.D., Chief Economist

Europe was the dominant factor for the markets, with fear (early in the week) giving way to some optimism (or at least, less pessimism) after European leaders expressed support for Greece and the euro, the BRICs offered some support (in buying European debt), and central banks announced dollar liquidity-providing operations. At this point, we’ve had more words than action. The news out of Europe is likely to vary over the next few weeks, which should have some day-to-day impact on the U.S. stock market.

The economic data were disappointing, although stock market participants did not seem to care. Retail sales were flat in August and figures for June and July were revised slightly lower. Industrial production rose modestly in August, restrained by a drop in the output of utilities (cooler weather) and supported partly by a gain in motor vehicle production – results were mixed across industries. [Read more]

The Weekly Market Snapshot from Frazier Allen for the week of September 11th

Market Commentary by Scott J. Brown, Ph.D., Chief Economist

Worries about a meltdown in Europe contributed to weakness in U.S. equities and helped drive Treasury yields lower. The European Central Bank left short-term interest rates unchanged. In the post policy meeting press conference, ECB President Trichet continued to talk tough on inflation, but noted “particularly high uncertainty and intensified downside risks” to the growth outlook. An ECB official was said to have resigned over the decision by the ECB to buy Italian and Spanish bonds. Market participants feared a potential default in Greece.

The U.S. economic calendar was thin, but reports remained consistent with the notion of subpar economic growth in the near term. Bernanke repeated that the Fed has “a range of tools to that could be used to provide additional monetary stimulus,” but the markets were disappointed that he didn’t provide details (actually, he doesn’t know – the Federal Open Market Committee will debate the possible costs and benefits of its various tools at the September 20-21 policy meeting). [Read more]

The Weekly Market Snapshot from Frazier Allen for the week of August 28th

Market Commentary by Scott J. Brown, Ph.D., Chief Economist

In his speech at the Kansas City Fed’s annual monetary policy symposium in Jackson Hole, Fed Chairman Bernanke said that “the Federal Reserve has a range of tools that could be used to provide additional monetary stimulus,” adding that “we discussed the relative merits and costs of such tools at our August meeting.” Bernanke said that Fed policymakers “will continue to consider those and other pertinent issues, including of course economic and financial developments, at our meeting in September, which has been scheduled for two days (the 20th and the 21st) instead of one to allow a fuller discussion.” He also noted that Fed officials expect inflation to “settle” over coming quarters at levels at below 2% (the upper end of the Fed’s comfort range. This inflation outlook, along with expectations of continued excess capacity, allowed the Federal Open Market Committee (on August 9) to make explicit the time frame (through the middle of 2013) that short-term interest rates are expected to remain exceptionally low. [Read more]

The Weekly Market Snapshot from Frazier Allen for the week of August 21st

Market Commentary by Scott J. Brown, Ph.D., Chief Economist

Fear remained a significant factor in the financial markets, as concerns about weaker economic growth and worries that Europe’s sovereign debt crisis may be morphing into a fully-fledged banking crisis (with some implications for the U.S.) helped send long-term Treasury yields to record lows (the 10-year note traded briefly below 2%).

The economic data were mixed, but consistent with a lackluster-to-moderate pace of growth in the overall economy, not a recession. Industrial production rose 0.9% (more than expected), boosted by hot weather (increased output of utilities) and a rebound in autos – otherwise, manufacturing output rose 0.3%. Residential construction activity was soft. Existing home sales disappointed (the National Association of Realtors cited problems in the appraisal process and difficulties in obtaining financing). Consumer price inflation rose more than expected, boosted by the seasonal adjustment (which inflated gasoline prices) and higher apparel costs (three large increases in a row). Owner’s equivalent rent (which accounts for about a quarter of the overall CPI and a third of the core CPI) rose 0.3% (as a point of comparison, OER rose 0.3% over the 12 months ending December 2010). [Read more]

The Weekly Market Snapshot from Frazier Allen for the week of August 14th

Market Commentary by Scott J. Brown, Ph.D., Chief Economist

Acting after Standard and Poor’s decision to downgrade U.S. debt and a subsequent 635-point drop in the Dow Industrials on Monday, August 8th, the Federal Reserve announced on Tuesday the 9th that it was freezing short-term interest rates for at least two years. The Fed also said it was discussing a “range of policy tools” that it was “prepared to employ,” which some investors interpreted as meaning additional monetary stimulus might be forthcoming if the economy remains weak.

Yields on short-term Treasury debt fell after the Fed announcement, with two-year notes offering just 17 basis points and yields on the benchmark 10-year Treasury notes dropping to levels last seen during the 2008 financial crisis. Noting that economic growth this year has been “considerably slower” than it had expected, the Fed also said it expects “a somewhat slower pace of recovery over coming quarters”. [Read more]

The Weekly Market Snapshot from Frazier Allen for the week of August 7th

Market Commentary by Scott J. Brown, Ph.D., Chief Economist

Leaders in Washington reached an agreement to raise the debt ceiling, averting a self-inflicted financial disaster. However, with the debt ceiling nonsense out of the way, investors were free to focus on the U.S. economic recovery and Europe’s debt crisis – and the outlook doesn’t look so hot. The U.S. economy has slowed and the downside risks to the growth outlook have increased. Although it still appears that the U.S. is likely to avoid a recession, the odds have increased. The European debt crisis appears to be enveloping Spain and Italy, which will be much bigger problems for the big banks in Europe. Stocks fell broadly around the world.

The July Employment report was consistent with the broad range of economic data releases of the last few weeks, suggesting a subpar economic recovery, but not a recession. Nonfarm payrolls rose by 117,000 – well above the +85,000 consensus forecast and, more importantly, not as bad as feared. The unemployment rate edged down to 9.1%, but would have risen if not for people exiting the labor force. After digesting the report, the stock market gave up gains made in an initial (positive) reaction to the report. Bonds yields fell. The dollar was mixed following efforts by the Swiss and the Japanese to weaken their currencies. [Read more]

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