Weekly recap 2/28/14
Looking over the past week, there were several economic reports that indicated further economic weakness in the US and abroad. The big event of the week, fourth quarter GDP, was revised down from and missed estimates at 2.4%, putting a damper on the strong 2014 estimates. CB Consumer Confidence, reported on Tuesday the 25th, had the prior month's report revised down to 79.4, and this month's missed its estimate of 80.0 and reported 78.1. We also saw weakness in the pending home sales, as estimates were expecting an increase of 2% month over month, but only increase .1%. There were a more than a few positive economic reports, however, that indicated that the aggressive estimates for 2014 were still intact. The Chicago PMI for February increased to 59.8 from 59.6, well above the estimate of 56.0. We also saw new homes sales increase to 468k in February, beating the estimate of 400k. Core durable goods, were expected to drop .3% due to weather related concerns, actually reported a gain of 1.1% month over month gain.
Bond and Stock Market Notes:
The Treasury bond market saw great demand, and pushed yields down even with a new issuance. The new demand stemming from some of the economic weakness as described above. Treasury Inflation Protected Securities (OTC:TIPS) also saw strong returns. TIPS yields declined more than nominal yields from other Treasury Securities, indicating that inflation expectations are beginning to rise. Looking at the returns from the stock market, we can see that even with some negative economic reports and international political turmoil, the DJIA, S&P500, and NASDAQ all boasted positive weekly returns of 1.4%, 1.3%, and 1.0%, respectively. Small and mid-cap stocks continued to post higher returns than large cap stocks, suggesting that a risk-on environment was still very much present. The leading industries for the week were the service industry and industrial goods industry, with 2.2% and 1.6% weekly gains, respectively. The laggard of the week was the utilities, up only .2% on the week.
Looking ahead at this week's major events and stories, it will be clear that the mean focus will be on international events, namely Ukraine. With the risk of war, there will be many questions on what this will mean on global stock, currency and commodity markets. This week will also feature all of the major countries PMI manufacturing reports, which will give us an up to date read on the health of the global economy.
On Monday, one major report that will be a key test of consumer strength will be auto sales. Economists are expecting total vehicle sales to be 15.4 million cars, even with the recent weather effects. Another key test for consumer spending and also the housing market will be total construction sales, which is also set to report on Monday. Economists are actually predicting sales to decrease by .5% due to weather related and cyclical reasons, so any beat or even positive reading here will be a strong indication for the US economy.
Before the market opens on Wednesday, ADP nonfarm payrolls will report their employment number. Economists are predicting an increase of 158k jobs in the month of February. This report will be key to the employment picture in the US, especially considering the diversion of ADP job numbers versus Bureau of Labor Statistics (BLS) job numbers. Another key employment figure coming out this week will be the jobs report coming out on Friday, where the unemployment rate is expected to decrease to 6.6%, with an increase of 150k jobs. It will be important to note the participation rate, as this will give us an indicator of the number of people dropping out of the workforce and retiring.
The consumer credit report on Friday will also give us key information on the health of the consumer. Economists are expecting credit balances in January to expand $14 billion, falling from $18.6 billion in December.