Market Commentary by Scott J. Brown, Ph.D., Chief Economist
The economic data were clouded by the effects of Hurricane Sandy and in most cases it’s impossible to isolate the storm’s impact. Retail sales fell 0.3% in October, although Sandy had both positive and negative effects. Initial claims for unemployment insurance benefits jumped, similar to the increase seen after Katrina in 2005. Industrial production fell 0.4% and Federal Reserve economists estimate that Sandy shaved a full percentage point from the headline production figure. Factory output fell 0.8%, but would have been flat if not for Sandy.
Currently, the Fed is buying about $40 billion per month in Mortgage-Backed Securities as part of its Large-Scale Asset Purchase program (QE3, funded by the creation of money) and about $45 billion in long-term Treasuries through its Maturity Extension Program (“Operation Twist”, funded by selling short-term Treasuries out of its portfolio). Operation Twist ends in December.There’s widespread expectation that the Fed will then begin to purchase Treasuries in QE3. The October FOMC minutes and Fed Bernanke’s latest speech reinforce this view. The FOMC minutes noted that “a number of participants indicated that additional asset purchases would likely be appropriate next year after the conclusion of the maturity extension program in order to achieve a substantial improvement in the labor market.” Bernanke said that he and other Fed officials “remain quite concerned about the stubbornly high level of unemployment – particularly long-term unemployment.”
Next week, the economic data reports are expected to remain overshadowed by concerns of the fiscal cliff, but don’t expect much progress in Washington. Figures are likely to reflect some distortions from Sandy. Fed Chairman Bernanke will speak on “The Economic Recovery and Economic Policy” on Tuesday afternoon. Also, you might want to keep an eye on what’s going on in the Middle East. Have a great Thanksgiving.
|Last||Last Week||YTD return %|
Consumer Money Rates
|Dollars per British Pound||1.586||1.584|
|Dollars per Euro||1.277||1.354|
|Japanese Yen per Dollar||81.130||77.030|
|Canadian Dollars per Dollar||1.003||1.022|
|Mexican Peso per Dollar||13.257||13.549|
|10-year municipal (TEY)||2.78||2.89|
Treasury Yield Curve – 11/16/2012
S&P Sector Performance (YTD) – 11/16/2012
|Existing Home Sales (October)
Homebuilder Sentiment (November)
|Building Permits, Housing Starts (October)
|Consumer Sentiment (November)
Leading Economic Indicators (October)
|Thanksgiving (markets closed)|
|Durable Goods Orders (October)
Consumer Confidence (November)
|New Home Sales (October)
Fed Beige Book
|Real GDP (3Q12, 2nd estimate)|
|Personal Income, Spending (October)|
|Employment Report (November)|
|FOMC Policy Decision, Bernanke Press Briefing|
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 November 15th, 2012.