Archive for June, 2012

World markets rallied Friday in response to the successful European Summit.  Germany’s Angela Merkel, under pressure from other European leaders, finally accepted to pledge more support for ailing European banks.  The German DAX index surged 4.33%, while the U.S. Dow and S&P jumped 2.20% and 2.49%, respectively.

Disappointing U.S. Consumer Sentiment figures failed to stop the U.S. markets from rising on Friday, even as the reading dropped from 79.3 in May to 73.2 in June.  In a somewhat contradictory note, crude oil prices rose 9.5% to $85.03 a barrel, signaling better growth prospects for the world economy and improving economic sentiment.  The rally in crude was largely brought about by the European Summit resolutions.  However, sanctions on Iranian oil production, set to come into effect on July 1^st, also contributed to the recovery in crude oil prices.  Earlier in the week, better than expected new and pending home sales helped steady the recent volatility in the markets.

Although skepticism and lack of details remain, the European Summit’s proposed initiatives are steps in the right direction.  Spain, largely seen as the next European country in need of fiscal intervention, saw the yield on its 10-year Treasury note drop from 6.89% to 6.29% on Friday.  The drop of .60% on Spain’s 10-year Treasury notes indicates that investors believe Spain is more likely to be able to pay its debt in the future.  Analysts are now focused on whether the European Central Bank meeting next week can further the successful proposals made at the European Summit.

The start of Q3 2012 begins on Monday with the ISM Manufacturing Index report, which monitors employment, production inventories, new orders, and supplier deliveries.  The expectation for June’s reading is 52.2, which is lower than the May’s reading of 53.5.  Additional important economic data due out next week include initial and continuing jobless claims and the ADP Employment Change, which are all due out on Thursday.

Have a good weekend,

Fred Semmer

 

After Thursday’s 251 point drubbing (the index’s second-largest one-day loss in 2012), the Dow rebounded on Friday, closing 71 points higher, or .6%.  For the week, the index fell 1.0%, and for the year, the Dow is now up 3.5%.

Markets breathed a sigh of relief after Greece’s pro-austerity New Democratic party emerged victorious in last Sunday’s elections.  The relief was short-lived, however, as reports hinting at protracted European growth stagnation combined with little action by the Fed turned optimism to worry and sent markets lower.  Two pieces of news on Friday helped stocks rebound: a statement from the European Central Bank pledging further help in reducing collateral requirements for bank loans, and, interestingly enough, a bank downgrade by Moody’s.

On Thursday after the market close, Moody’s downgraded several of the largest global banks, including Bank of America, Citigroup, Goldman Sachs, JP Morgan and Morgan Stanley. The downgrades had been widely expected (as Moody announced in February that the banks were under credit review for possible downgrades) and in the case of Morgan Stanley, less severe than some had feared.  The financial sector absorbed the better-than-expected ratings and helped lead overall market performance higher on Friday.  Less uncertainty helps the market.

All the banks mentioned in the report are still investment grade, and trust preferred pricing improved following the downgrades. We expect trust preferreds to continue to trade near par as the redemption cycle supports pricing.

Our trust preferred portfolios continue to weather the market volatility, returning 9% on average versus 2.9% for the Dow, year-to-date through Thursday, June 21.  After retreating further this week, oil finished higher on Friday to close at $79.76.  A storm in the Gulf of Mexico combined with Iranian sanctions and renewed hopes for more robust European growth helped reverse the downward trend earlier in the week.

Economic reports next week include May new home sales on Monday, consumer confidence readings on Tuesday and Friday, weekly unemployment claims on Thursday and June manufacturing data on Friday.  Expect new home sales to be flat, consumer confidence to fall slightly, unemployment claims to remain in the 380,000 range and manufacturing data to show a decline.

Have a good weekend,

James Skjong

 

Anticipation of another round of stimulus by the Fed and reassuring comments from the world’s biggest central banks combined to boost markets Friday, helping the Dow to a 115 point gain, or .91%.  For the week, the index rose 213 points, or 1.7%. For the year, the Dow is now up 4.5%.

All eyes will be on Greece this weekend with its general election on Sunday.  It is more or less a two-party battle between the status quo New Democratic party and the anti-austerity Syriza party.  Should the New Democratic party emerge victorious, it is likely the bailout package offered to the country earlier in the year by European leaders will progress as planned, with little disruption.  However, if Syriza claims the win and the bailout package is renounced (as party leaders have resolved to do), Europe may cut off funding to the country, leading to default and an eventual exit from the Eurozone.  Markets will be heavily influenced by the results and will most likely react negatively to a Syriza victory.  As a preemptive measure, coordinated action by the world’s largest central banks has been promised to ensure liquidity and economic stability following the elections.  The Fed will have an additional opportunity to address the world and US economy during its June meeting next Tuesday and Wednesday.  Speculation abounds about another round of stimulus – the outcome of the Greek election and subsequent economic fallout will certainly affect the Fed’s actions.

Greece’s elections on Sunday will kick off a big week for Europe, which will include a G20 meeting on Monday and Tuesday, a Spanish bank audit, a Eurozone financial ministers’ meeting on Thursday and an EU leaders’ summit on Friday.  These events will play significant roles in the formation of the Eurozone’s recovery.  Each will have a market impact.

Despite the uncertainty, our trust preferred portfolios continue to outperform the Dow, returning 8% on average versus 3.6% for the Dow, year-to-date through Thursday, June 14.  Softer oil prices are curtailing the performance of the energy stocks in our portfolios.  Crude continues to trade in the $83/84 range, down more than 20% from its high earlier in the year, caused by excessive production from Saudi Arabia.

Next week, May housing data on Tuesday and Thursday, the June Fed rate decision on Wednesday and weekly initial jobless claims on Thursday will highlight the US economic reporting calendar.  Expect flat housing data, interest rates to remain unchanged and jobless claims to continue trending in the 380,000 neighborhood.

Have a good weekend,

James Skjong

 

European economic troubles were not enough to prevent the Dow from finishing up 93 points on Friday, the index’s fourth positive finish in five days.  For the week, the Dow rose 436 points, or 3.6% – the index’s biggest weekly gain of 2012.  For the year, the Dow is now up 2.8%.

Most attention remains on Europe and Spain in particular, as another downgrade of the country’s credit on Thursday preceded news on Friday that Spain might ask the European Union for a bailout of its banks as early as this weekend.  In response, a meeting has been scheduled this weekend between the 17 EU finance ministers, with hopes that a plan can be set in place to quell Spain’s banking troubles before the Greek elections on June 17.  Further adding to the European troubles were reports from Germany and Italy citing slowdowns in exports and industrial production, respectively.  One piece of news initially cheered by investors on Friday was the announcement of a .25 point interest rate cut in China.  Though the cut will act as a stimulus measure, it also signals recognition of a slowing Chinese economy, which more-than-likely will be confirmed this weekend when China releases a large batch of May economic data.

In the US, comments from Fed Chairman Ben Bernanke on Thursday left the door open for another round of stimulus.  Actions in Europe and their effect on the global economy will play a large role in whether or not any further steps are taken.

Our trust preferred portfolios continue to withstand the market volatility, outperforming the Dow by approximately 6%, returning 8% on average versus 2% for the Dow, year-to-date through Thursday, June 8.  Energy stocks in our portfolios have been adversely affected by falling oil prices.  Crude oil briefly traded below $83 per barrel on Friday for the first time since last October before closing at $84.10.  Crude oil prices are sensitive to world economic growth forecasts and geopolitical unrest such as found in Iran, which has been calmer than earlier in 2012.

Next week, economic reporting highlights include retail sales on Tuesday, inflation data on Wednesday and Thursday and initial jobless claims also on Thursday.  Expect May retail sales to slip slightly from April, inflation to remain a non-issue and jobless claims to settle in the 370,000 range.

Have a good weekend,

James Skjong