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February 6, 2010: Market Week in Review

Posted by Larry Doyle on February 6, 2010 7:37 AM |

Global risks remain high. Global supports remain strapped. What are the results? Markets remain volatile and skittish. Why? Our global economy along with our domestic economy remain under the pressure of massive debts and deficits across the sovereign, corporate, and consumer spectrum.

Global governments can not prop economies and markets forever, try as they might. Can 2010 successfully transition from these total government supported and propped markets to a hoped for return to private enterprise with private capital? The year to date results of this transition are not pretty. We remain a long way from being out of the woods. Pack lightly and lets navigate.

Welcome to our Sense on Cents Week in Review where I provide a streamlined recap of the major economic news and month-to-date market returns.

ECONOMIC DATA:

1. Sovereign Risk from the Euro-zone: the potential of a sovereign default and subsequent need for a bailout by the EU was the heaviest weight on the global economy and market this week. For my thoughts, please review “When Will Euro-PIGS Fly?”

2. Unemployment: jobless claims rose and the overall unemployment situation remains beyond challenging. The move lower in the actual unemployment rate is a function of people giving up looking for work, not job growth. For all the details, please review my commentary from yesterday, “Unemployment Report: February 5, 2010.”

All other economic news paled in comparison to these two stories.

The following market statistics are January’s close versus the weekly close (February 5th) and the subsequent month-to-date returns:

U.S. DOLLAR

$/Yen: 89.21 vs 90.19, -1.1%
Euro/Dollar: 1.367 vs 1.386, -1.3%
U.S. Dollar Index:
80.25 vs 79.48+1.0%

Commentary: the overall U.S. Dollar Index continued to improve primarily on concerns emanating from the Euro-zone. It was not all that long ago when the Euro was trading north of 1.50 to our greenback. Now the Euro is the pig and all those who had shorted the dollar (sold dollars to buy other currencies and/or other risk-based assets) are scrambling to unwind the dollar carry trades that dominated markets in 2009.

COMMODITIES

Oil: $71.74/barrel vs $72.64, -1.2%
Gold: $1066/oz. vs $1081.7, -1.5
Copper:
$2.89 vs $3.10, -6.8%
DJ-UBS Commodity Index:
126.56 vs 129.05, -2.0%

Commentary: commodities continued to weaken this week. I remain focused on the fact that once China started restricting bank lending, commodities in general and copper and oil specifically started falling. Copper is down approximately 13% year to date. Oil is down 10% year to date. The overall commodity index is down almost 10%. Watch commodities and other markets will follow. I believe this sector is most representative of real economic activity.

EQUITIES

DJIA: 10,012 vs 10,067-.55%
Nasdaq: 2141 vs 2147-.04%
S&P 500: 1066 vs 1074, -.75%
MSCI Emerging Mkt Index:
926 vs 940-1.5%
DJ Global ex U.S.:
185.3 vs 191.9, -3.4%

Commentary: international and emerging market equities led the overall equity markets lower. Our domestic markets tried to rebound early in the week, but when developments from the Euro-zone worsened midweek all markets dropped hard, especially Thursday. Trend lines remain in place for likely further consolidation.

BONDS/INTEREST RATES

2yr Treasury: .77% vs .82%, 5 basis points or -.05% (rates down, bond prices up)
10yr Treasury: 3.57% vs 3.59%, -2 basis points or -.02%

COY (High Yield ETF): 6.63 vs 6.89 -2.6%
FMY (Mortgage ETF): 18.41 vs 18.62, -1.1%
ITE (Government ETF):
57.92 vs 57.83+0.1%
NXR (Municipal ETF):
14.30 vs 14.33, -0.2%

Commentary: with weakness across the commodity and equity markets, cash poured into the short end of our U.S. Treasury market in a flight to safety. Other sectors of the bond market, primarily those with the greatest degrees of risk (high yield corporates), gave ground.

SUMMARY/CONCLUSION

I maintain the same points I highlighted last week.  Risks remain high. Markets are clearly unsettled. What are the risks? Will our economic landscape regain the calm induced by the massive flow of Fed liquidity? The risks are centered in the following areas:

1. A continued weak economy, especially within housing and labor.

2. Washington in disarray. The markets may ultimately like political gridlock, but for now the weakness in Washington is pervasive.

President Obama may win awards for the most air time, but he truly needs to cease and desist with the campaigning and get back to work. His actions and words convey a President and a presidency focused on polling and political expediency. The markets view that style and approach as both weak and risky.

3. The “thrown the bums out” mentality directed at Congressional incumbents on both sides of the political aisle remains. America increasingly understands Washington is much more part of the problem than the solution. This also unsettles the market.

4. Just what will come from Obama’s plan to rein in proprietary trading and risk on Wall Street? More uncertainty and unsettledness  . . . and thus greater risk.

5. When and how will the Fed withdraw stimulus and support for the market? How will that play out? How will it be executed? Are we in a bubble? Can we gently ease the air out of the balloon? More risk.

All these questions are historic in nature. Sense on Cents will be monitoring closely.

Enjoy the Super Bowl. I think it has the potential to be a fabulous game. I am calling Colts 31-Saints 28. Given the game, I will return on February 14th for my next edition of No Quarter Radio’s Sense on Cents with Larry Doyle.

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Have a great day and weekend.

LD

  • Mike

    Yikes.. We can’t seem to escape a strong dollar anymore. Doesn’t matter if the PIGS default or if EU bails them out, We might see USD at levels from last November again or worse. What’s Bernanke to do?

    2009 may prove to have been a big bubble, surprise surprise. Think of a campfire after gas gets thrown on it, it’s weaker than it was before.






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