Archives for June 2015

The Stakes Have Gotten Higher for Greece Weekly Update – June 29, 2015

Image courtesy of FreeDigitalPhotos.net/Stuart Miles

Image courtesy of
FreeDigitalPhotos.net/Stuart Miles

Markets lost ground last week, giving in to nerves about Greece and some early second-quarter earnings reports. For the week, the S&P 500 dropped 0.40%, the Dow fell 0.37%, and the NASDAQ lost 0.71%.

Crumbling Greek debt talks were in focus again last week as the deadline toward the June 30 expiration of Athens’ bailout program edges closer. Though Greek leaders asked for a one-month extension of the bailout, creditors rejected the request, pushing the stakes much higher for Greeks.

The threat of a liquidity crisis – inevitable if Greece is ejected from the Eurozone – sent Greeks scrambling to withdraw funds from bank accounts. Sources say that over one-third of ATMs in the country ran out of cash. Though Greek banks are dealing with record withdrawals, the European Central Bank announced Sunday that it will cap emergency support for banks at current levels, leaving their cash reserves seriously depleted. If Greek leaders lock down access to accounts, ordinary Greeks could suddenly find the euros in their accounts converted to another currency if Greece exits, seriously complicating their ability to buy goods and services until the financial system recovers.

While a crisis is already underway in Greece, it’s very unlikely that serious issues will make their way to U.S. shores. Why? As the chief economist of First Trust puts it, “Greece is Detroit, Not Lehman.” In terms of international impact, a Greek default will look more like Detroit’s bankruptcy than the collapse of Lehman Brothers in 2008. Lehman Brothers played a significant role in financial markets and its sudden collapse shocked the world, helping to trigger the financial crisis.

In contrast, Greece’s contribution to the world economy is miniscule, and the country’s financial problems have been going on for years. While there is no way to know for sure how a Greek exit will affect financial markets, we believe that markets and economies worldwide are already prepared for the eventuality. Though we may see short-term volatility and a possible market retreat, we believe that many fears are overblown.

Looking ahead, Thursday’s June jobs report will be the highlight of the Independence Day shortened week. Investors will be weighing the latest job market data to predict how soon the Fed may raise rates. Markets will also be looking toward Greece as the bailout deal nears expiration on Wednesday.

ECONOMIC CALENDAR:

 Monday: Pending Home Sales Index, Dallas Fed Mfg. Survey

Tuesday: S&P Case-Shiller HPI, Chicago PMI, Consumer Confidence

Wednesday: Motor Vehicle Sales, ADP Employment Report, PMI Manufacturing Index,

ISM Mfg. Index, Construction Spending, EIA Petroleum Status Report

Thursday: Employment Situation, Jobless Claims, Factory Orders

Friday: U.S. Markets Closed For Independence Day Holiday

6292015

HEADLINES:

U.S. economy contracted in Q1. The latest government data shows that Real Gross Domestic Product growth, the leading indicator of U.S. economic activity, contracted by 0.2% in the first quarter of 2015.

Consumer spending surges in May. Spending by American consumers recorded its biggest gain in nearly six years. Consumer spending rose 0.9% on strong demand for big-ticket items like automobiles.

China lowers interest rates again. In an effort to boost their sluggish economy, Chinese central bankers lowered interest rates for the fourth time and eased lending rules for small businesses.

Factory growth drops. Growth in manufacturing activity in U.S. factories slipped in June for the third month in a row, dropping to the lowest level since October 2013. The data could suggest that the economy didn’t rebound as much as expected in the second quarter.

What Did the Fed Announce on Wednesday? Weekly Update – June 22, 2015

Image courtesy of freedigitalphots.net/ddpavumba

Image courtesy of freedigitalphots.net/ddpavumba

Last week, markets shrugged off concerns about deadlocked Greek negotiations and rallied on strong economic data, sending the NASDAQ to a new historic high. For the week, the S&P 500 grew 0.76%, the Dow rose 0.64%, and the NASDAQ gained 1.30%.[i]

The Federal Reserve wrapped up its June meeting on Wednesday surprising no one with the announcement that the central bank will keep rates at zero percent for a while longer. Though the Fed appears to be confident that the economy is growing modestly, officials prefer to maintain the status quo until they’re more certain that rate hikes won’t harm the recovery.[ii]

We don’t yet know when the Fed will begin raising interest rates, but a number of respondents to a recent survey are betting on a third-quarter rate hike.[iii] Are rate expectations already baked into stock and bond markets? It’s hard to know for certain, but the Fed has been doing a good job of laying the groundwork for future rate moves, so we can hope that markets won’t overreact when rates start to go up.

Negotiations between Greece and its European lenders broke down again Thursday, weighing on European stocks. Greece is trying to negotiate a new round of credit from European lenders that would allow it to make scheduled debt repayments by the end of June. Negotiators have not been able to reach a deal that would satisfy creditors’ need for budget cuts and pension reform. Though Thursday’s meeting was billed as a last-chance effort to break the deadlock, some time remains before Greece formally falls into default.[iv] How will the game of chicken end? We don’t know.

Looking ahead, European and Greek leaders will hold an emergency summit on Monday to attempt to resolve the bailout gridlock. Panicked about what would happen if Greece defaults on its debt payments and leaves the Eurozone, depositors have been withdrawing cash from Greek banks, leaving some insiders speculating that Greek banks may not be able to reopen next week. If negotiators are unable to reach a compromise before the end of the month, we can expect the breakdown to cause markets to turn volatile. We’ll keep you updated as necessary.

ECONOMIC CALENDAR:

 Monday: Existing Home Sales

Tuesday: Durable Goods Orders, PMI Manufacturing Index Flash, New Home Sales

Wednesday: GDP, EIA Petroleum Status Report

Thursday: Jobless Claims, Personal Income and Outlays

Friday: Consumer Sentiment

06-22-2015

 

HEADLINES:
Housing starts fall in May. Groundbreaking on new houses fell last month, but a surge in permits for new construction suggests that the pause may be temporary and that the housing sector will see strong growth this season.[v]

Jobless claims fall more than expected. The number of Americans filing new claims for unemployment benefits fell more than expected, remaining below the key 300,000 level for the 15th week in a row.[vi]

Inflation sees biggest gain in two years. Consumer prices jumped in May by the largest amount since 2013. The data indicates that price drops relating to gasoline savings may be over and that inflation is returning to trend.[vii]

Apartment rentals reach historic high. Occupancy rates in apartments reached 95.3% in May, the highest level on record, as Americans of all ages move into rental housing in droves.[viii]

 

[i]https://www.google.com/finance?chdnp=1&chfdeh=0&chdet=1434757045361&chddm=1955&cmpto=INDEXDJX:.DJI;INDEXSP:.INX;INDEXNASDAQ:.IXIC&cmptdms=0;0;0&q=INDEXDJX:.DJI,INDEXSP:.INX,INDEXNASDAQ:.IXIC&ntsp=0&ei=j6aEVfmwNs6x2Aa8u4DYDA

[ii] http://www.cnbc.com/id/102766785

[iii] http://www.cnbc.com/id/102759995

[iv] http://www.cnbc.com/id/102770738

[v] http://www.foxbusiness.com/economy-policy/2015/06/16/housing-starts-pause-after-gains-permits-soar/

[vi] http://www.foxbusiness.com/economy-policy/2015/06/18/weekly-jobless-claims-fall-more-than-expected/

[vii] http://www.foxbusiness.com/economy-policy/2015/06/18/consumer-inflation-sees-biggest-gain-in-more-than-two-years/

[viii] http://www.cnbc.com/id/102770312

The Greece Problem Explained – Weekly Update – June 15, 2015

Image Courtesy of FreeDigitalPhotos.net/StuartMiles

Image Courtesy of FreeDigitalPhotos.net/StuartMiles

Markets ended last week mixed, falling on Friday as concerns about the debt impasse in Greece outweighed upbeat domestic data. For the week, the S&P 500 gained 0.06%, the Dow grew 0.28%, and the NASDAQ fell 0.34%.

So, what’s going on in Greece? For weeks, Greek leaders have been deadlocked in negotiations with creditors over the latest round of debt relief for the troubled country. Greece can’t pay its bills and is locked out of traditional credit markets because of its bad economic state. To keep the lights on and the country running, Greece has been relying on financial support from the Eurozone and International Monetary Fund since 2010. In exchange for the financial support, creditors instituted a set of austerity reforms and budget cuts designed to get Greece on sounder financial footing.

These cuts have been widely hated by Greeks, and a new government was elected in January that promised to tear up the credit agreements and end austerity measures. Since then, creditors have refused to lend Greece more money until they agree to reinstate reforms.

Why won’t Greece give in to the creditors’ demands?

Greece refuses to reinstate austerity measures because they are blamed for shrinking the economy by 21% and driving unemployment to 25% (50% among young workers). The current government would violate campaign promises if it agreed to proposed cuts to the pension system or raised taxes. Greek negotiators have asked for forgiveness of a big slice of previous loans, additional credit that’s not tied to austerity measures, as well as access to other sources of funds. Will they get all these things? Probably not.

Why won’t Greece’s creditors end the call for austerity measures?

Currently, Greece owes nearly twice its annual economic production in debt. Creditors want to institute spending cuts and tax increases to reduce its debts. Though they might be willing to restructure Greece’s debts in future negotiations, they don’t want to embolden populists in other countries by caving to Greek demands. They are taking a hard line in negotiations because they believe that the Eurozone is in better shape to handle a Greek default.

What will happen if talks fail?

It’s hard to know for certain how this game of chicken will play out. If negotiators fail to come to an agreement by the end of the month, the credit deal will expire and Greece will default on its debts (though it may use some extension provisions to avoid a formal default).

The risk that everyone’s worried about is that of a Greek exit from the Eurozone, or “Grexit.” Since the European Union’s inception, no country has left the currency or political union. The current situation will help define the future of the EU. Economists and EU leaders are worried about questions like:

• Can the EU survive the exit of a member country?
• Would Greece abandon the Euro but remain in the EU?
• Would a Grexit open the door for other countries to leave?

For U.S. investors, problems in Europe would be felt in U.S. exports (since Europe is a major trading partner), international exposure in portfolios, and as another factor in global economic growth. Right now, the U.S. economy appears to be doing well, so it’s unlikely that economic contagion would spread. Though financial markets would likely react badly to a Grexit, we can hope that positive domestic fundamentals would bring investor sentiment back. Though we can’t predict market movements, we’re watching the situation closely and will let you know if we feel any prudent adjustments need to be made.

This week, investors will be closely watching the Federal Open Market Committee meeting on Tuesday and Wednesday for clues about the Fed’s next steps. Realistically, Wednesday’s announcement will probably reiterate the Fed’s wait-and-see approach to the economy. We’ll keep you updated.

ECONOMIC CALENDAR:

Monday: Empire State Mfg. Survey, Industrial Production, Housing Market Index
Tuesday: Housing Starts
Wednesday: EIA Petroleum Status Report, FOMC Meeting Announcement, FOMC Forecasts, Fed Chair Press Conference 2:30pm ET
Thursday: Consumer Price Index, Jobless Claims, Philadelphia Fed Business Outlook Survey

06-15-2015

HEADLINES:

Oil prices drop as Saudis get ready to produce. International oil prices fell again Friday on supply worries after major oil producer Saudi Arabia announced a potential deal to increase supplies to India. Higher global oil inventory could reignite worries of a supply glut.

Consumer sentiment jumps in June. A strengthening job market spurred American confidence in the economy, driving up a measure of consumer sentiment. This data suggests that the stage is set for stronger growth this quarter.

Job openings hit 14-year high in April. The number of open positions climbed by the most since 2000, indicating that the labor market continues to gain ground.

Retail sales jump in May. In another positive sign for the economy, retail sales surged by 1.2% in May as Americans increased their purchases of automobiles, furniture, and other big-ticket items.

 

Hixon Zuercher June 2015 Monthly Market Update

5 Things We Learned From The May Jobs Report Weekly Update – June 8, 2015

Image courtesy of FreeDigitalPhotos.net/suphakit73

Image courtesy of
FreeDigitalPhotos.net/suphakit73

Markets ended lower last week as investors balanced an optimistic jobs report against renewed concerns about a Greek debt default. For the week, the S&P 500 lost 0.69%, the Dow fell 0.90%, and the NASDAQ slid 0.03%.[i]

On Friday, we got a look at how the labor market did in May. After jobs growth stuttered in the first quarter, investors were looking for reassurance that the economy can still support hiring. Here are three good things and two not-so-good things that we learned:

  1. The economy created 280,000 new jobs in May, beating expectations and leaving economists feeling optimistic about growth this quarter.[ii]
  1. The unemployment rate ticked upward to 5.5%, but that’s mostly a result of an increase in the number of people looking for jobs. A higher labor force participation rate is a good sign because it means people are feeling confident enough in job opportunities to go looking, so we’ll count this one as a positive.[iii]
  1. Lagging wage growth, which has concerned economists, appears to be reversing with U.S. workers adding $0.08/hour to their paychecks last month. Wage growth over the last three months is much closer to the 3.0% we’ve seen in past economic recoveries.[iv] Since economic growth depends heavily on consumer spending, we can hope that bigger paychecks will translate into a greater willingness to spend.
  1. In the not-so-great category, we learned that the majority of the new jobs created were in low-paying industries like retail, hospitality, temp work, home health services, etc.[v] Though we’re seeing an uptick in full-time work, many Americans are still struggling to find good-paying jobs, which may limit their ability to qualify for a mortgage and make big-ticket purchases.
  1. Productivity, measured in output per worker hour, registered a dismal 0.3% increase last month. Productivity is a major factor in long-term economic growth, and low labor productivity could be a warning sign. Is it cause for worry?

Probably not. Productivity is often tied to wages – higher wages have been seen to boost worker productivity – so we can hope that wage increases will boost output. There are also some economists who argue that the way productivity is estimated doesn’t account for technological improvements and shifts in the ways Americans work today.[vi]

Looking ahead, investors will be watching Greek debt negotiations closely to see whether creditors will bow to hardline Greek demands for loans without austerity measures, or whether they will allow debt-laden Greece to slide into default. We’ll also get a look at the latest retail sales and business inventories data, which will show us how consumers and businesses are spending this quarter.

 

ECONOMIC CALENDAR:

 Tuesday: JOLTS

Wednesday: EIA Petroleum Status Report, Treasury Budget

Thursday: Jobless Claims, Retail Sales, Import and Export Prices, Business Inventories

Friday: PPI-FD, Consumer Sentiment

6-8-2015

HEADLINES:

Greece delays debt payment to International Monetary Fund. Greece postponed a payment due Friday until the end of June. A government leader declared that Greece might hold snap elections to choose a new government.[vii]

American Pharoah wins Triple Crown at Belmont Stakes. The horse previously won the Kentucky Derby and Preakness races, bringing home the elusive Triple Crown for the first time since 1978.[viii]

 Oil settles up on lower rig count. Oil prices jumped Friday, sending domestic prices close to $60/barrel when an industry report showed that the number of U.S. drilling rigs fell for the 26th week in a row.[ix]

Mortgage rates remain high. Interest rates on 30-year fixed mortgages remained at 3.87% for the second week in a row, reaching the highest level since late 2014. High rates may curb housing market activity this season.[x]

[i] https://www.google.com/finance?q=INDEXDJX%3A.DJI%2CINDEXSP%3A.INX%2CINDEXNASDAQ%3A.IXIC&ei=wKN0VaDLG9TAjAGl44DoCA

[ii] http://www.cnbc.com/id/102736075

[iii] http://www.cnbc.com/id/102736075

[iv] http://fortune.com/2015/06/05/jobs-wage-increase/

[v] http://www.bls.gov/news.release/pdf/empsit.pdf

[vi] http://www.cnbc.com/id/102737213

[vii] http://www.foxbusiness.com/economy-policy/2015/06/05/greece-postpones-payment-to-imf/

[viii] http://www.foxbusiness.com/industries/2015/06/04/american-pharoah-winnings-2015-belmont-stakes-triple-crown-zayat-bob-baffert/

[ix] http://www.foxbusiness.com/markets/2015/06/05/active-us-oil-rig-count-down-26-weeks-in-row/

[x] http://www.foxbusiness.com/markets/2015/06/04/30-year-mortgage-rate-remains-highest-since-late-2014/

What’s the Big Deal Now in Greece? Weekly Update – June 1, 2015

U.S. markets ended the week on a down note as investors struggled with weak economic data and concerns about Greek debt negotiations. However, markets were able to end the month of May in the black. For the week, the S&P 500 lost 0.88%, the Dow dropped 1.34%, and the NASDAQ fell 0.38%.[i]

On Friday, we got a look at revised first-quarter gross domestic product (GDP) growth numbers, and we found out that the economy actually shrank 0.7 percent last quarter instead of growing.[ii] The news wasn’t unexpected, as economists knew that the economy struggled with issues like a harsh winter, a port shutdown, and a strong dollar that ate away at U.S. exports. However, it’s unwelcome because it means that the economy still hasn’t reached escape velocity and the recovery may still be fragile.

Though we don’t have data on the spring quarter yet, many economists expect a significant rebound in economic growth. We’ve seen estimates ranging from 1.0 percent to 3.2 percent, so it’s clear that there’s a lot of room for debate.[iii] Markets also took a hit from stalled Greek debt negotiations. Greece is currently deadlocked in talks with creditors for a new round of loans needed to service its debt and make government payments. To give you a brief bit of history: Greece was at the center of the European debt crisis after financial markets imploded in 2008.[iv]

To ward off a sovereign debt default, which might have touched off another European crisis, Greece accepted loans from European and international lenders in 2010. In exchange for the money, Greece agreed to institute austerity measures, massive cuts to government spending, designed to bring the national debt under control.

However, the cuts were deeply unpopular with Greek citizens, and a new leftwing Greek government elected in January rose to power on a wave of anger at the effects of austerity – rampant unemployment, brain drain, and low economic growth.[v]

What’s the big deal now? New Greek leaders refuse to reinstate austerity measures, and their creditors don’t want to extend more loans unless they meet their economic terms. If Greece doesn’t get another infusion of cash by its next debt deadline on June 5, the country will default on debt payments, which may trigger a banking crisis and possible exit from the European Union.[vi] Though the long-term effects of a “Grexit” (Greek exit) can’t be predicted, investors are likely to worry that where Greece goes, other countries may follow.

If Greece fails to reach an 11th-hour deal with its creditors this week, it’s likely that European and U.S. markets would react badly to the news. Let’s hope that this latest round of brinksmanship can be resolved; as always, we’ll keep you informed. The week ahead is also filled with domestic economic data, including the May employment report, which investors hope will show that the labor market continued its upward trend after a March blip.

 

ECONOMIC CALENDAR:

 Monday: Personal Income and Outlays, PMI Manufacturing Index, ISM Mfg. Index, Construction Spending

Tuesday: Motor Vehicle Sales, Factory Orders

Wednesday: ADP Employment Report, International Trade, ISM Non-Mfg. Index, EIA Petroleum Status Report, Beige Book

Thursday: Jobless Claims, Productivity and Costs

Friday: Employment Situation

6-1-15

HEADLINES:

Consumer sentiment beats expectations though still weak. U.S. consumers remain cautious about the current state of the economy, leading some analysts to worry about consumer spending this quarter.[vii]

Durable goods orders fall. Orders for long-lasting factory goods fell in April, but the underlying data indicates that business spending is slowly picking up. Excluding volatile transportation orders, orders climbed 0.5%.[viii]

New home sales rise more than expected in April. Sales of newly constructed single-family homes surged in April, indicating that a housing sector resurgence may be underway. Hopefully, the strengthening job market will support sales activity.[ix]

Pending home sales looking up. A forward-looking indicator of U.S. home purchases rose in April for the fourth straight month in a very positive sign for the housing sector. The gauge rose 14% over April 2014, the highest level since May 2006.[x]

 

[i] http://finance.yahoo.com/echarts?s=%5EGSPC+Interactive#{“comparisons”:”^DJI,^IXIC,^GSPC”,”comparisonsColors”:”#cc0000,#009999,#ff00ff”,”comparisonsWidths”:”1,1,1″,”comparisonsGhosting”:”0,0,0″,”range”:”ytd”,”showPrePost”:false}

[ii] http://www.marketwatch.com/story/us-gdp-turns-negative-in-first-quarter-again-2015-05-29

[iii] http://www.marketwatch.com/story/us-gdp-turns-negative-in-first-quarter-again-2015-05-29

[iv] http://www.nytimes.com/2015/04/09/business/international/explaining-the-greek-debt-crisis.html

[v] http://www.theguardian.com/world/2015/jan/25/greece-election-vote-austerity-leftwing-syriza-eu

[vi] http://www.bloomberg.com/news/articles/2015-05-25/greece-points-to-june-imf-payment-as-next-cliffhanger

[vii] http://www.foxbusiness.com/economy-policy/2015/05/29/consumer-sentiment-picks-up-in-may/

[viii] http://www.foxbusiness.com/economy-policy/2015/05/26/durable-goods-orders-slip-match-views-in-april/

[ix] http://www.foxbusiness.com/economy-policy/2015/05/26/new-home-sales-prices-rise-strongly-in-april/

[x] http://www.foxbusiness.com/economy-policy/2015/05/28/pending-home-sales-jump-more-than-expected-in-april/