MV Financial Blog

Posts published in October 2010

This Week in Global Markets

October 25, 2010

By Katrina Lamb, CFA

  • Comment

Things to Watch

  •  Existing home sales on Mon 10/25 (update: up 10%; higher than expected)
  •  Case-Shiller home prices on Tues 10/26 (update: down 0.2%; lower than expected)
  •  Consumer confidence index on Tues 10/26 (update: increase to 50.2%; close to expectations)
  •  Durable goods orders on Wed 10/27
  •  New home sales on Wed 10/27
  •  3Q GDP initial estimate on Fri 10/29
  •  Earnings:  du Pont, Ford, Kimberly-Clark, Comcast, P&G, Exxon Mobil, Met Life, Microsoft, Merck

On the Menu: This Week in the Public Discourse

US government issues $10 billion of TIPS at a negative interest rate (-0.55%). TIPS provide natural hedge against inflation (i.e. hedge against QE run wild) but also benefits from deflation because the principal amount is only adjusted upwards against inflation (value not eroded if prices decline).

Dollar continues downward trend against most currencies (UK pound is one notable exception). Dollar and equities continue to move in near-perfect negative correlation (bear in mind that for foreign investors in US stocks, with non-dollar base currencies, a 5% increase in US stock prices and a 5% decrease in the value of the US dollar nets out to a 0% return).

UK budget direction announced on October 20 – moves to make significant cuts to government spending generally applauded as bold (as opposed to certain other Anglo-Saxon economies…) but market responses (in UK debt, pound sterling & equities) reflect an ambivalence about prospects for success.

Market Sentiment

Overall the earnings season is a bit more muted than 2Q: bright spots this week include strong rebound numbers from Ford, but Kimberly-Clark highlights weakness in staple consumer goods.

Housing remains stuck in the mud: higher sales of existing homes reflects availability and high volume of foreclosure sales, but prices remain mired around 2003 levels. No immediate recovery seen.

Market tenure remains generally upbeat – strong week in US last week with gains largely holding this week in somewhat more muted trading. October can be the cruelest month but this year it looks like we may escape the fright nights and head into window-dressing season with plenty of momentum.

Tags

  • No tags were found.

This Week in Global Markets

October 11, 2010

By Katrina Lamb, CFA

  • Comment

Things to Watch

  • Report on international trade balance due out Thurs 10/14
  • Producer Price Index report due out Thurs 10/14
  • Consumer Price index report due out Fri 10/15
  •  Earnings announcements this week: Intel, JPMorganChase, Google, GE

On the Menu: This Week in the Public Discourse

“Bad but not so bad” is the new “good”: Most of the positive undertone in equities markets is coming from QE2 expectations, which requires the economy to be in relatively bad shape, but not bad enough to fall back into recession. Watch the CPI numbers at the end of the week.

3Q earnings are underway. Alcoa topped estimates. Of the firms reporting this week GE and Intel are probably most significant as directional bellwethers.

Policymakers ended the weekend’s G20 session with no resolution on the ongoing currency market issues. Meanwhile Thailand joined the party with measures aimed at controlling the recent strength of the baht (Thailand’s currency). Over $7.7 billion of foreign investment has come into Thai bonds this year (a pattern playing out in other emerging markets as well).

Market Sentiment

All eyes on November: the Fed will determine its stance on QE at the November Open Market Committee meeting. Our most likely scenario has more money coming into equities positions in the meantime as consensus builds towards a new round of easing. However any signals to the contrary – either from Fed policymakers or from unexpected economic signals – could catalyze a trend reversal.

Treasury yields continue to set records: the 2-year note is yielding 0.35% now and the 10-year is down at 2.26%. The US dollar is at 9-month lows although the decline has stabilized so far this week.

Capital flows into emerging markets: “hot money” or structural shift? Probably both – portfolios are re-allocating increased weights to EM (including ours), but the pace has been particularly intense in the past several weeks. Interesting fact: An average increase of 2.5% by developed- market portfolios into EM (e.g. you increase an EM exposure from 5% to 7.5%) implies $500 billion in aggregate. Hence the concerns playing out by policymakers in Thailand, Korea, Brazil and other “hot” markets.

Tags

  • No tags were found.