It was a relatively light week from an economic standpoint, as the highlights were mostly focused on Italian and Greek politics and their role in the ongoing Eurozone situation (see last week’s note regarding drama). As the pinnacle, we saw a resignation of the heads of state in both nations as part of the negotiation process for austerity and debt reduction measures. On Friday, Italy’s senate approved a series of these measures, which brought down yields.
The high-profile and closely-watched economics team at Goldman Sachs now believes the Eurozone has entered into recession in Q4, albeit perhaps a shallow one. The core nations are expected to bounce back next year, while the peripheral countries face a continued rough road for several years, in their estimation, led by difficult by austerity measures. Whether this is proven true or not, markets already appear to have priced in this outcome.
In another important part of the world, data released from China this week showed slowing momentum and falling inflation, but measured enough to keep the belief that a “soft landing” there is possible. If this stabilization occurs, then chances increase for better Chinese domestic demand, which, in turn, would continue to boost global GDP growth. China is the engine that has been doing that for the global economy, which explains why so many eyes are on them at this point in time.
The quarterly Fed Senior Loan Officer Survey showed some drop-off in demand for borrowing, at least on the commercial side. Consumer/mortgage loan demand was fairly stable from the quarter prior. While inconsistent, lending standards were shown to have eased slightly, which partially addresses one complaint about the recent recovery, in that banks have remained stingy with lending—perhaps not surprising considering the easy ending excesses of the prior cycle that helped contribute to the 2008 meltdown. Instead of lending, banks have been hoarding cash, but some data points to this trend improving as of late.
The Trade Balance improved to a level of -$43.1 billion for September, which was smaller than the consensus forecast of -$46 billion. Prices for imported finished consumer goods was quite a bit higher, but overall import prices declined (in line with lower commodity prices).
Initial Jobless Claims came in at 390,000 versus an expected 400,000 for last week, so an ongoing improvement. Continuing claims fell by 92,000—also a better improvement than consensus—for the last week in October.
The University of Michigan Consumer Sentiment Survey saw slight improvement in October from 60.9 to 64.2 (better than expected) and was led by economic expectations improving and long-term inflation expectations falling.
Market Notes
| Period ending 11/11/2011 |
1 Week (%) |
YTD (%) |
| DJIA |
1.57 |
7.37 |
| S&P 500 |
0.94 |
2.28 |
| Russell 2000 |
-0.21 |
-3.94 |
| MSCI-EAFE |
-0.24 |
-9.33 |
| MSCI-EM |
-1.87 |
-15.65 |
| BarCap Aggregate |
-0.15 |
6.90 |
| Interest Rates |
3 Mo. |
2 Yr. |
5 Yr. |
10 Yr. |
30 Yr. |
| 12/31/2010 |
0.12 |
0.61 |
2.01 |
3.30 |
4.34 |
| 11/4/2011 |
0.01 |
0.22 |
0.88 |
2.06 |
3.09 |
| 11/11/2011 |
0.01 |
0.24 |
0.90 |
2.04 |
3.12 |
Markets reacted to another interesting week as Tuesday marked excitement over the divisive Italian Premier Silvio Berlusconi’s departure. Wednesday’s poor day stemmed from the uncertainty about his replacement (as if it hadn’t been considered before), and Thursday and Friday rebounded as prospects for effective and acceptable replacements in both Greece and Italy looked more promising. All-in-all, headline-driven, as the earnings season side of things tapered off.
It ended up being a fairly good week for large-cap equity assets on the U.S. side, while smaller-cap and foreign assets ended lower. From a sector standpoint, more defensive names in health care and consumer staples performed well, while cyclical financials and technology lagged the market by the widest margins.
In fixed income, it was a relatively positive week for holders of U.S. Treasuries, while corporates and high yield lagged. It was a poor week for Italian bondholders, as yields spiked with additional “risk premium” due to the uncertainty before coming down again Friday. Our portfolios are not focused on European debt, but, rather, lower-maturity emerging nation debt with better yields and stronger fundamentals. Commodity indexes also performed well with higher oil prices during the week.
It is one business day late, but we wanted to take a moment to send our regards to the veterans in the group for Veteran’s Day. We sincerely acknowledge and appreciate your service.
Enjoy the week.
Karl Schroeder, RFC, CSA, CEP
Investment Advisor Representative
Schroeder Financial Services, Inc.
480-895-0611