Market Commentary by Scott J. Brown, Ph.D., Chief Economist
The financial markets were confused by the April 30th – May 1st FOMC minutes, which noted that “a number of participants expressed willingness to adjust the flow of purchases downward as early as the June meeting if the economic information received by that time showed evidence of sufficiently strong and sustained growth.”
That’s not a majority view. In his testimony before the Joint Economic Committee, Fed Chairman Bernanke gave a balanced assessment but strongly suggested that monetary policy would unlikely be changed anytime soon. Bernanke told Congress that it was doing fiscal policy wrong, significantly restraining the pace of recovery in the near term, while doing little to address the long-term problems in the budget outlook. Stocks sold off sharply following the FOMC minutes, but recovered.The federal debt ceiling went back into effect on May 19th. In a letter to Congress, Treasury Secretary Lew said that his department has the ability (though extraordinary measures) to fund the government at least through Labor Day.
The economic data were mostly better than expected. Existing home sales improved, although the pace continued to be restrained by credit and inventory issues. New home sales picked up, but results varied across regions. Jobless claims fell back after spiking in the previous week. Durable goods orders rose more than expected, but monthly changes in these data are volatile.
Next week, there are a few potentially market-moving data releases in the holiday-shortened week. Consumer confidence is likely to improve, although sentiment varies considerably across the income scale. The estimate of real GDP growth for 1Q13 is likely to be revised slightly higher, but the underlying story shouldn’t change much. Personal income and spending figures will help fill in the picture for 2Q13 GDP growth.
Income is expected to have been relatively soft in April, restrained by weak wage income growth. Spending is likely to have been weak (note that cold weather lead to a jump in the consumption of household energy in March, which should unwind in April). The PCE Price Index is expected to fall further, with the year-over-year increase pushing below 1%. Core inflation is trending lower.
|Last||Last Week||YTD return %|
Consumer Money Rates
|Dollars per British Pound||1.512||1.569|
|Dollars per Euro||1.293||1.256|
|Japanese Yen per Dollar||101.900||79.410|
|Canadian Dollars per Dollar||1.031||1.027|
|Mexican Peso per Dollar||12.479||14.012|
|10-year municipal (TEY)||3.17||2.95|
Treasury Yield Curve – 05/24/2013
S&P Sector Performance (YTD) – 05/24/2013
|Memorial Day Holiday – markets closed|
|S&P/Case-Shiller Home Price Index (March)
Consumer Confidence (May)
|Jobless Claims (week ending May 25th)
Real GDP (1Q13, 2nd estimate)
Pending Home Sales Index (April)
|Personal Income and Spending (April)
Chicago Purchasing Managers Index (May)
Consumer Sentiment (May)
|ISM Manufacturing Index (May)|
|ISM Non-Manufacturing Index (May)
Fed Beige Book
|Employment Report (May)|
|FOMC Policy Decision, Bernanke Press Briefing|
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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 May 23rd, 2013.