Friday, October 17, 2014

Stocks, Oil Down For The Week

QUICK READ:  Stocks got absolutely trounced this week, saved only by ephemeral rumors of Janet Yellen making dovish comments behind closed doors. The global economy continues to be mired in a slowdown, making it more difficult for Europe to simply inflate and spend its way out of stagnation. The growing concerns over how to contain the Ebola outbreak has also roiled the markets, as stocks are down and gold continues to climb.



While economic conditions seem to be steadily improving in the U.S., markets have continued to fall right along with Europe. The dollar finally saw some easing this week, while investors poured into Treasuries in droves. Gold remains stable as it steadily moves higher on increased demand.



Oil remains in a bear market, as both major benchmarks opened the week below $90. WTI crude was trading below $84 on Friday while Brent crude was under $87. These represent fresh four-­year lows for crude oil, partly due to surplus production. Falling oil prices will also apply downward pressure on inflation generally, as lower energy and transportation costs help drive the prices of many commodities lower.



All three of the major U.S. stock indices opened in the red Monday, each sliding more than 1%. Over a three­-day span going back to last week, the S&P lost 4.8%, the worst showing for the index over such a time period since November 2011. The stock markets ran off five consecutive days of losses, culminating in a “Hail Mary” from the Fed: it was leaked on Wednesday, when the Dow was down more than 400 points, that Janet Yellen had privately expressed confidence in the growth outlook for the U.S. economy last week. This was all investors needed to feel better, and the markets largely erased the day’s losses. There was little movement on Thursday, however, in spite of surprisingly high industrial production numbers and the lowest first-­time jobless claims report in over 13 years. This positive data was coupled with retail sales coming in below expectations and the Producer Price Index (PPI) dropping for the first time in over a year.



European stocks were at a 13-­month low this week, struggling to gain momentum in such a growth­-depressed economic environment. Several Mediterranean countries have been aggressively selling off government bonds, driving yields up. Greece’s 10­year Treasury note has gained a staggering 318 basis points over the last month, touching 8.94% before slightly easing back to 8.64%. To a lesser extent, even Europe’s strongest economy is feeling the lack of bond demand, as well. After dipping below 0.8%, the German 10­year bund yield rose 6 basis points back to 0.82%.


By contrast, U.S. Treasuries have been the beneficiary of Europe’s growth concerns. After beginning the week down around 2.28%, the yield on 10­year T-­notes fell even further on record trade volumes; some $777 billion of Treasuries exchanged hands on the market by 2 pm on Wednesday, the heaviest volume of such trades on record. As a result, 10­year yields briefly slipped below 2% before returning to about 2.05%. Some selling occurred on Friday morning, as yields rose again to 2.22%.



A LOOK AHEAD:

Yellen spoke on Friday morning in front of the Boston Fed regarding inequality of economic opportunity in America. Presumably, poverty will drop following her comments. The Consumer Price Index (CPI) will be updated next week on Wednesday and first­-time jobless claims are slated for Thursday. Existing home sales will be reported Tuesday while new home sales come out Friday. Together, this data should give a clearer indication of consumer sentiment and market conditions.



By Everett Millman, head content writer at Gainesville Coins, a leading gold and silver distributor.