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Ronan Keenan
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Ronan Keenan is a Senior Macro Analyst whose writing has appeared in The Atlantic, World Policy Journal, Global Policy Journal, Diplomatic Courier and Business & Finance magazine among others. His blog is Macrowatcher.blogspot.com
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  • Stocks Unconvincing Despite New Highs

    The S&P 500 (NYSEARCA:SPY) closed at a new record high Friday, but again it was another stumbling, directionless performance. Markets opened higher, perhaps relieved that Q4 GDP was not much worse than forecasts, but then declined on news of heightened tensions in Ukraine. Gains were recovered into the close on late buying as investors realized that despite social media hysteria, a world war is not imminent.

    Data today was muted. GDP growth for Q4 was revised down sharply from 3.2% to 2.4%, a marked contrast to Q3's 4.1%. Still, today's number was pretty much as forecast so there were no surprises for the market. Within the report were signs of weaker consumption, which remains a worrying aspect of the US economy; without a strong consumer it will be difficult to maintain steady growth.

    Of course, Q4 seems a while ago now, and markets rarely move much on such data, but it seems that figures for 2014 are currently incapable of having significant impact. The usual citations of cold weather were used for the much weaker than expected increase in US pending home sales: January's sales rose +0.1% while expectations were for +1.0%. Housing data has been very weak this year, but there is a reluctance to conclude that higher mortgage rates are strangling the recovery and instead everyone seems to be waiting until weather is no longer an acceptable excuse before worrying.

    Yet there was some brief panic late on Friday afternoon following news of Russian troops illegally entering Crimea in Ukraine. We've seen this before when Russia rumbled into Abkhazia in Georgia, but while it is a distressing geopolitical event, it remains localized and far away from impacting US stocks. Stern rhetoric will likely come from the US, but the prospect of this developing into an international conflict is remote. Washington's appetite for military action is extremely low as evidenced by the Syrian confusion last year, and going head-to-head with Russian forces is not on the cards at this time.

    So when markets digested the developments late this afternoon, stocks rebounded into the close, reclaiming gains. Bond yields actually finished higher on the day, with the yield on the Treasury 10-year finishing ~2.65%, showing no signs of increased safe haven buying.

    Markets are currently in a state in which there are few catalysts to push them on another strong run. February was a strong month for the S&P 500, gaining +4.3%, but this rally has done little more than recover January's losses. Markets have realized that things haven't worsened since the new year began, but there has been nothing to generate optimism. With US economic data being discounted with weather excuses, there are few positive catalysts on the horizon.

    It has seemingly reached the stage where corporate performance will need more than cost-cutting measures. The sector needs a strong economy to boost revenues and, with data currently meaningless, markets could be in a flux for a while.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Feb 28 4:59 PM | Link | Comment!
  • No Story For Wednesday's Market Decline - And That's Not A Bad Thing

    There is no clear explanation for Wednesday's S&P 500 decline, but that's nothing new. Markets have rallied and sold-off this year without any significant changes in the macro environment, leaving analysts to scramble for drivers of the daily moves. There were any number of reasons given for the day's 0.7% SPY decline, ranging from turmoil in Ukraine to the release of Federal Reserve minutes and even the potential terror threat from explosives hidden in shoes.

    As in recent weeks, disappointing US economic data was brushed off by markets and today it was housing starts. Weather has been cited as the culprit for this year's disappointing figures, but it's not clear if this excuse can be used for January's housing starts. Wednesday's report showed that housing starts were exceptionally weak in the Midwest, as would be expected, but actually rose in the Northeast.

    While markets rose early in the day despite the housing data, they fell steadily following the afternoon release of minutes from January's FOMC meeting. Yet the overall tone of the minutes largely agreed with Janet Yellen's House testimony last week and showed a generally upbeat assessment of the US economy. There were some notable details such as "a few" participants indicating that it might be time to raise the federal funds rate relatively soon. This might have unnerved some investors that tightening is imminent, but the likelihood of a rate increase seems very small.

    Markets may also have disliked the apparent support to continue the $10 billion taper of the Federal Reserve's $65 billion monthly bond-buying program. This sentiment was also reinforced earlier in the day by separate comments from three regional Fed presidents who seemed in agreement that the tapering should be complete by Q4 of this year. Notably, the Fed speakers were Dennis Lockhart (Atlanta), James Bullard (St Louis) and John Williams (San Francisco) who are each considered relatively moderate, so their opinion carries some more weight than officials who are outright doves or hawks. Some analysts say a faction of investors that had hoped the Fed would slow the taper finally had their hopes quashed by the day's slew of Fed commentary, thus explaining the increased selling late in the day.

    The FOMC minutes also indicated that officials discussed changing the forward guidance, given that a 6.5% unemployment rate is currently used as the guiding threshold for an interest rate hike, but the actual level is 6.6%. To dispel concerns of an imminent hike, the Fed would seemingly like to engineer a new method of communicating a rough timeline for its next rate move. While the issue was discussed at the FOMC meeting, there was no agreement on what metrics should be used. Regardless, it is unlikely that the market was overly influenced by this.

    It is difficult to discern the market reaction to the worsening political events in Ukraine, Thailand and Venezuela. Clashes between Ukrainian security forces and thousands of protesters drew condemnation from President Obama Wednesday afternoon and there are fears that the unrest may spread beyond Kiev. In Thailand, anti-government protesters surrounded Prime Minister Yingluck Shinawatra's temporary office in Bangkok to demand her resignation. And in Venezuela the opposition leader was due in court to face charges of fomenting unrest as thousands took to the streets to demand the resignation of President Nicolás Maduro.

    It is only a few weeks ago that an emerging market "crisis" was supposedly looming, even though there was no apparent deterioration in fundamentals at the time of the late-January/early-February market selloff. Yet now social unrest is worsening in several countries and there is seemingly little response from US markets; the muted nature of Wednesday's decline dismisses the notion of panic. This is actually a positive sign as it indicates that the emerging market "crisis" talk earlier this year was purely driven by general sentiment and
    not an actual expectation of a meltdown reminiscent of the late 1990s.

    Also, it hopefully shows that investors now recognize that "emerging markets" are not a single entity. Half the global economy is made up of emerging economies with separate political issues and idiosyncratic financial fundamentals.

    Ultimately, Wednesday was a day in which markets moved lower because investors needed more inspiration before moving the indices to new highs. The investment world doesn't have to change for markets to have a down day.

    Tags: SPY, Macro
    Feb 21 11:47 AM | Link | Comment!
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