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  • Making Waves After The Rally - By Jennifer Coombs

    It was unlikely we would witness another 400-point pop in the Dow Jones Industrial Average today, but fortunately, we aren't experiencing the opposite in today's session. Markets are oscillating quite a bit today on high volume thanks to Quadruple Witching taking place before the holidays; that again is the expiration of various stock index futures and options on the same date and at the same time. Crude oil has made a slight comeback today, trading about 3.4% higher for the session to just above $56 per barrel. Russia's economy continues to struggle as European Union leaders are encouraging the country to ease its stance on the Ukraine or face more economic sanctions. It was a very light economic day in the US, but there was some compelling data out of Europe overnight.

    Despite all of the gloom-and-doom economic headlines coming out of Germany over the past few months, there was a new spark of hope this week. Namely that despite the country's slowing economic growth and industrial production their consumers don't seem to be fazed. The forward looking reading (listed as January 2015 for the month of December) of Germany's GfK consumer confidence index came in at 9.0 which is the highest level since December 2006. Economists are also starting to feel optimistic about consumer sentiment, as they set their estimate to 8.7 for the month. Within details of the report, consumers' economic expectations and willingness to buy products improved over the month of December as lower energy prices gave households some flexibility to make larger purchases. However, income expectations worsened, which was explained by unstable international situations rather than domestic circumstances. Since Europeans conduct far more business with Russia, any geopolitical woes with the country also affects the economic moods of European nations. Nevertheless, as Europe's largest economy, this news is relatively positive for the region as a whole. The German consumer is definitely emerging from a period of weakness, also evidenced by business confidence showing its second consecutive month of improvement.

    Dec 19 3:10 PM | Link | Comment!
  • Another Unexpected Rally - By Jennifer Coombs

    The major equity indices are rocking again today, almost completely negating the market pullback from recent weeks. Global markets rallied today as well by over 2.0% primarily thanks to the Fed's comments yesterday. In addition, Russian President Vladimir Putin finally addressed the collapse of the Russian economy, saying that under the most negative circumstances, this weakness in the ruble and the economy will last a maximum of two years. Most assuredly, "growth is inevitable" was the phrase that sent the ruble higher and calmed some market nerves for now. Domestically, the Fed's comments weren't the only factors causing the equity indices to soar.

    Firstly, the weekly jobless claims came in far better than expected, which leads many to believe that December's employment data may round out the year on a high note. After the pop above 300,000 in late November, the initial jobless claims have been coming back down and are now near their recovery lows. For the third straight week, initial claims came down, this time by 6,000 to 289,000 in the week ended December 13. The 4-week average, at 298,750, is down fractionally for the first decrease since the beginning of November. The December 13 week is also the sample week for the December jobs report, and when compared to November's sample the results are rather mixed. Lagging by a week, continuing claims were also mixed at 2.373 million in the week of December 6th, which was down by a substantial 147,000 and almost the reverse of the prior week's 148,000 surge. The 4-week average is up by 10,000 at 2.397 million, with the 4-week average trending roughly 30,000 above the month-ago comparison. There is good news in the unemployment for insured workers, which is down to its recovery low at 1.8%. No special factors influencing the weekly jobless data is a great positive indication of what may be reported in the December employment situation.

    Although not nearly as strong as November's reading, the Philadelphia manufacturing region still showed some very strong growth. The Philly Fed's general business conditions index slowed to 24.5 from 40.8 in November, which is still one of the highest readings since 2011. However, details of the report show that there was slowing across the board, especially for new orders which came in at 15.7 in December compared to the 35.7 reading in November. Employment came in at 7.2 versus 22.4 in the month before and shipments came in at 16.1 compared to the 31.9 reading in November. It was this 31.9 reading that first signaled that November was supposed to be a great month for manufacturers, which was confirmed in Monday's industrial production report where the manufacturing component jumped by 1.1%. This report offers similar indications to the seemingly contradictory reading in the Empire State report as well as the flash PMI manufacturing report from Tuesday. It doesn't look like December will remotely come close to posting the same kind of strength as November, but we note that the rate of growth is still relatively strong.

    Lastly, the index of leading economic indicators continues show strong near-term growth rates, at 0.6% for November versus the downwardly revised 0.6% in October and the 0.8% in both September and August. On the positive side, yield spreads (reflecting the Fed's near-zero rate policy), manufacturing orders and credit indications are all strong. Negative factors include November's decline in building permits and initial unemployment claims, which were briefly over 300,000 in November. All in all this is a very health report and coincides with arguments from the Fed's hawks who warn that the economy is headed up and so should interest rates.

    Dec 19 10:13 AM | Link | Comment!
  • Old Cold War Names Moving Market Higher - By Jennifer Coombs

    In an odd turn of events, the major equity indices are actually trading higher in advance of the release of the Federal Reserve Open Market Committee (FOMC) comments. While the US is still struggling economically, our problems seem to be mild compared to other developed nations right now. Russia's government is throwing everything (including the kitchen sink) at the ruble to try and fix the damage done to its currency. The Russian finance ministry stepped in to buy rubles after the currency was destroyed yesterday, only to gain about 8% of its value back against the dollar today. Russian citizens and businesses on the other hand, are taking matters into their own hands and are buying up as much foreign currencies as possible to hedge against the ruble dropping further. The biggest news of the day so far was President Obama's comments announcing significant changes in diplomatic measures between the US and Cuba. The market responded well to these comments, but we will see how well they respond to Janet Yellen's statements later today.

    While not a massive market mover, the Mortgage Bankers' Association's (MBA) weekly reading on mortgage applications shows just how much the housing sector has oscillated in the past year. During the week of December 12, a sharp drop in mortgage rates failed to lift overall mortgage activity with the purchase index falling a steep 7.0% and the refinance index was left unchanged. However, there was an 11.0% pickup in government refinance applications led by a 16.0% rise for VA refinance applications. The purchase index proved to be negative for home sales once again as the index declined 5.0% year-over-year in the week. Also, the average 30-year fixed mortgage for conforming loan balances ($417,000 or less) fell by 5 basis points in the week to 4.06% to the lowest rate since May last year. We'll be keeping a lookout for what the Fed says this afternoon as their plans may damper (or boost) mortgage growth in the coming weeks.

    Dec 17 2:23 PM | Link | Comment!
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