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Market Insights

Market Insights: May 27, 2014

Economic Outlook:  A Slow news week, but all of it was positive…

  • The generally positive economic signals continued last week. Regional manufacturing reports (from the Fed Regions in Philadelphia and New York) were positive last week, showing up as the PMI Manufacturing Flash Index increases to 56.2 this month [Markit].
  • Also, on the positive side — Existing Home Sales increased 1.3% in April, which is only the second gain in the past 9 months [National Association of Realtors]. It will be interesting to see if this represents a bottoming in some of the recently weak housing data.
  • The Conference Board’s Leading Indicators continue to increase, up 0.4% in April
  • There was more good news from the UK. Retail Sales were up 1.3% for the month and +6.9% year-over-year. The second estimate of 1Q GDP is confirming a 3.1% expansion in the UK economy over the trailing 12 months.
  • The Euro-zone PMI Composite Flash reading remains in expansion territory at 53.9. Germany’s stats lead the region with a strong 56.1 reading. France remains in a slight contraction reading at 49.3.
  • China’s manufacturing remains in slow down mode with the PMI Flash Mfg Index still coming in below 50 as it has for the past couple months, signaling contraction.

Equities Outlook:  A quiet week ahead of the holiday

  • Most markets advanced marginally last week. For the first week in a while, smaller capitalization stocks outperformed their larger cousins, though clearly still trail on a relative basis by a good amount for the year 2014.
  • There were not too many market moving events last week. Perhaps all the comments by the various Federal Reserve Presidents, as well as Fed Chair, Janet Yellen, reassured the markets a bit.

The Fed and Fixed Income Markets:  Fed Comments…

  • The Ten-Year Treasury has not changed much in yield during the week. It had closed the previous week at a yield of 2.52%, and has opened trading in this holiday-shortened week at a yield of 2.55%.
  • San Francisco Fed President John C. Williams corroborated current Fed mainstream thinking on when policy rates will begin to rise. He stated that rates would rise sometime in the next year or so. This is consistent with quarterly Fed forecasts that expect rate increases to begin in mid-2015.
  • Philadelphia Fed President Charles Plosser predicted last week that the Fed bond purchase program will end in the fall of 2014. He sees the economy on its firmest footing since 2009.

The Week Ahead:

Tuesday

  • Durable Goods Orders (Dept of Commerce)
  • Case Shiller Home Price Index (S&P, Case-Shiller)

Wednesday

  • Euro-zone Economic Sentiment (European Commission)

Thursday

  • US GDP Release Second Estimate (BEA)

Friday

  • Personal Income and Outlays (BEA)