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Clarksville, TN – As expected, Greece’s election resulted in a turn to the left. The new leadership indicated that it intends to remain in the euro, but will seek a reduction in austerity and some restructuring of the country’s debt.
That sets up a conflict with other European countries that oppose such moves. This will likely take some time to resolve, with headlines expected to add to global financial market volatility in the weeks to come. Meanwhile, euro area inflation fell to -0.6% y/y.
Real GDP rose at a 2.6% annual rate in the advance estimate for 4Q14 (vs. a median forecast of +3.1%), but it was still a good report. As expected, it was a strong quarter for consumer spending (+4.3%), but a relatively soft quarter for business fixed investment (+1.9%).The surprise was a wider trade deficit (figures for October and November has suggested little change). Stronger growth in imports (+8.9%) is a sign of strength in the domestic economy, but imports have a negative sign in the GDP calculation.
Domestic Final Sales (GDP less net exports and the change in inventories) rose at a 2.8% pace, but would have risen about 3.4% if not for a drop in defense spending (unwinding an unexpected jump in 3Q14). The PCE Price Index fell at a 0.5% annual rate in 4Q14, reflecting lower oil prices, but core inflation fell to 1.1% (vs. the Fed’s goal of 2.0%).
The other economic data were mixed. Consumer confidence jumped, as labor market perceptions improved sharply. Durable goods orders disappointed by a wide margin. The Federal Open Market Committee repeated that it can be “patient” in deciding when to begin raising short-term interest rates. It added “global developments” to the list of what it will consider.
Next week, fresh economic data will arrive in bunches, bookended by ISM manufacturing data on Monday and the Employment Report on Friday. However, stock market participants are likely to be more influenced by earnings reports and news from abroad. The January jobs data will be subject to noise in the seasonal adjustment. Unadjusted nonfarm payrolls typically fall by more than 2.8 million each January (reflecting the end of the holiday shopping period).
Consumer Money Rates
Treasury Yield Curve – 01/30/2015
S&P Sector Performance (YTD) – 01/30/2015
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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 January 29th, 2015.
Frazier Allen, WMS, CRPS, Financial Advisor with F&M Bank
Web Site: http://www.raymondjames.com/frazierallen
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