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Market Commentary by Scott J. Brown, Ph.D., Chief Economist
The economic data were mixed. The ISM Manufacturing Index disappointed in August, but the Non-Manufacturing Index was a bit stronger than expected. Unit auto sales picked up. The ADP estimate of private-sector payrolls rose by 201,000. However, the BLS nonfarm payroll figure rose 96,000 (median forecast: +135,000), with a net revision of -42,000 to the two previous months. The unemployment rate fell to 8.1% (from 8.3%), but that was due to a drop in labor force participation (I wouldn’t read much into that, it’s well within the normal range of uncertainty).
The European Central Bank unveiled its bond-buying program (dubbed Outright Monetary Transactions). The OMT is designed to address dislocations in the government bond market (that is, higher borrowing costs in Italy and Spain). It’s not monetary stimulus, but it should improve the transmission of existing monetary policy. Bond purchases will be unlimited, concentrated in maturities of three to five years, and conditional on fiscal progress. The OMT averts a near-term crisis, but doesn’t solve the region’s underlying problems.
Next week, the calendar remains busy. The important economic data releases bunch up on Friday. However, the German Constitutional Court ruling and the Fed’s policy decision will carry much more weight. German justices will rule on the legality of the European Stability Mechanism and the Fiscal Pact. Fed officials were close to providing further accommodation at the previous policy meeting, but preferred to wait for more information.
Many FOMC members felt that further action would be warranted absent evidence of “a substantial and sustainable” improvement in the economy. Bernanke’s Jackson Hole speech noted that the labor market stagnation was “a grave concern.” The softer-than-expected employment report for August should push the Fed over the edge. Expect the Federal Open Market Committee to extend the forward guidance (lengthening the period for which officials expect short-term interest rates to remain exceptionally low). Additional asset purchases (QE3) are now seen as more likely than not.
Consumer Money Rates
Treasury Yield Curve – 9/7/2012
S&P Sector Performance (YTD) – 9/07/2012
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 September 6th, 2012.
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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