Market Commentary by Scott J. Brown, Ph.D., Chief Economist
The FOMC Minutes from the July 31st/August 1st policy meeting showed that Fed officials were worried about the deceleration in economic growth. “Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery.” However, “several members noted the benefits of accumulating further information that could help clarify the contours of the outlook for economic activity and inflation as well as the need for further policy action.”
Meeting participants discussed three policy options: extending the forward guidance (the length of time which the Fed expects to keep short-term rate exceptionally low), undertaking another round of asset purchases, and lowering the interest rate the Fed pays on excess bank reserves. Extending the forward guidance appeared to have the least amount of internal resistance, but additional asset purchases had some support.The economic data were mixed. Home sales rebounded in July. Durable goods orders jumped 4.2%, led by a surge in orders at Boeing. Ex-transportation, orders fell 0.4%, and June was revised to -2.2% (from -1.4%). Ex-transportation, unfilled orders declined and inventories picked up – not a good sign.
Next week, there are plenty of potentially market-moving data releases, but market reaction should be relatively limited ahead of Bernanke’s Jackson Hole speech. Investors will be looking for clearer signals of QE3, but may be disappointed. Governor Romney will deliver his acceptance speech on Thursday evening and presidential candidates normally get a brief pop in the polls after the convention.
|Last||Last Week||YTD return %|
Consumer Money Rates
|Dollars per British Pound||1.587||1.650|
|Dollars per Euro||1.258||1.442|
|Japanese Yen per Dollar||78.490||76.640|
|Canadian Dollars per Dollar||0.993||0.989|
|Mexican Peso per Dollar||13.143||12.327|
|10-year municipal (TEY)||3.25||2.92|
Treasury Yield Curve – 8/24/2012
S&P Sector Performance (YTD) – 8/24/2012
|S&P/C-S Home Price Index (June)
Consumer Confidence (August)
|Real GDP (2Q12, 2nd estimate)
Pending Home Sales Index (July)
Fed Beige Book
|Jobless Claims (week ending 8/25th)
Personal Income and Spending (July)
Romney Acceptance Speech
|Chicago Purchasing Managers Index (August)
Consumer Sentiment (August)
Bernanke Speaks (Jackson Hole)
|ECB President Draghi speaks (Jackson Hole)|
|Labor Day Holiday (markets closed)|
|Obama Acceptance Speech|
|Employment Report (August)|
|Fed Policy Meeting
Bernanke Press Briefing
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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 August 23rd, 2012.