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Market Commentary by Scott J. Brown, Ph.D., Chief Economist
The economic data calendar was thin, but stock market participants continued to express concerns about the outlook. Bonds rallied, with the 10-year Treasury yield pushing below 3%. The European Central Bank left short-term interest rates unchanged, but ECB President Trichet said that “strong vigilance is warranted,” a signal that rates will almost certainly be raised in July.
The trade deficit narrowed in April, suggesting that net exports may add to GDP growth in 2Q11. The Fed’s Beige Book indicated that “economic activity generally continued to expand, though a few districts indicated some deceleration.” Loan demand was “steady to stronger,” especially in the commercial and industrial sector, while “widespread improvement” was reported in credit quality – a good sign.
Fed Chairman Bernanke said that growth this year “looks to have been somewhat slower than expected,” citing supply-chain disruptions following Japan’s earthquake and tsunami. However he noted that “growth seems likely to pick up in the second half of the year,” as effects of Japan’s disaster dissipate and gasoline prices moderate. He said that “the economy is moving in the right direction,” but cautioned that “it is still producing at levels well below its potential; consequently, accommodative monetary policies are still needed.” The Fed appears unlikely to put in place another round of asset purchases (what many would call “QE3”), but it is also unlikely to tighten policy anytime soon.
Next week, there are a lot of important data releases, but none are likely to alter the underlying picture. The focus will likely be on the retail sales and CPI reports. Note that seasonal adjustment will result in lower gasoline prices in May, depressing the headline PPI and CPI. The core CPI is likely to rise modestly, but could reflect increases in autos and rents.
Consumer Money Rates
Treasury Yield Curve – 6/10/2011
S&P Sector Performance (YTD) – 6/10/2011
Treasury Yield Curve – 5/27/2011
S&P Sector Performance (YTD) – 5/27/2011
Past performance is not a guarantee of future results. There are special risks involved with global investing related to market and currency fluctuations, economic and political instability, and different financial accounting standards. The above material has been obtained from sources considered reliable, but we do not guarantee that it is accurate or complete. There is no assurance that any trends mentioned will continue in the future. While interest on municipal bonds is generally exempt from federal income tax, it may be subject to the federal alternative minimum tax, state or local taxes. In addition, certain municipal bonds (such as Build America Bonds) are issued without a federal tax exemption, which subjects the related interest income to federal income tax. Investing involves risk and investors may incur a profit or a loss.
US government bonds and treasury bills are guaranteed by the US government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. US government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Treasury bills are certificates reflecting short-term (less than one year) obligations of the US government.
Commodities trading is generally considered speculative because of the significant potential for investment loss. Markets for commodities are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. Specific sector investing can be subject to different and greater risks than more diversified investments.
Tax Equiv Muni yields (TEY) assume a 35% tax rate on triple-A rated, tax-exempt insured revenue bonds.
The information contained herein has been obtained from sources considered reliable, but we do not guarantee that the foregoing material is accurate or complete. Data source: Bloomberg, as of close of business June 9th, 2011.
Frazier Allen, WMS, CRPS, Financial Advisor with F&M Bank
Web Site: http://www.raymondjames.com/frazierallen
TopicsCapacity Utilization, Consumer Price Index, Economic Data, European Debt, Federal Open Market Committee, Financial Markets, Frazier Allen, Global Equity Markets, Gross Domestic Product, Index of Leading Economic Indicators, Manufacturing Output, Raymond James, Raymond James Investment Services, Scott J. Brown, Seasonal Adjustment, Short-Term Interest Rates, Volatility, Weekly Market Snapshot
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