Newsletter: In the Markets – Week-Ending October 21
Crystal Brook Advisors
We Make Financial Planning Crystal Clear™
United States: Jobless claims are higher than expected in the U.S. The number of people receiving benefits has also grown. Economists believe there is no special cause for this increase in the number of applications for unemployment benefits, while others believe people are temporarily out of work due to the recent Hurricane Matthew. (1) Furthermore, labor force participation rates have been declining, even though the unemployment rate is near “full employment.” There is a drop in the number of “prime age” workers (25-54) who are considered employed, which represents an untapped potential for the economy (2). Moreover, auto sales for October are expected to drop seven percent from the same period last year. This is not necessarily a negative indication of the economy, as auto sales have been at their highest levels recently. This is accepted more of a natural correction. (3) On a positive note, rebounding from a 1.5 percent decline in August, existing home sales rose to the second highest annualized sales pace this year at 5.47-million units. September’s gain was driven by first-time homebuyers reaching a 34 percent share of total sales–a high not seen since July 2012 (3).
Europe: The pound is down by 15% on a trade-weighted basis since the Brexit vote, and is plumbing the depths it reached in the 2008-09 financial crisis. This is caused by the decline in British demand for foreign investment as a result of the Brexit decision (4). Italy is Europe’s fourth-biggest economy and one of its weakest. Public debt stands at 135% of GDP; the adult employment rate is lower than in any EU country bar Greece. Amid stagnation and deflation, Italy’s banks are in deep trouble, burdened by some €360 billion ($400 billion) of souring loans, the equivalent of a fifth of the country’s GDP. (4) Moreover, in Switzerland, investors are expecting negative yields on government debt, a trend that has been surfacing around the world in many countries with high levels of credit, such as Germany. The U.S. 10-year treasury yields reached a new low this week (4).
Asia: China’s GDP target is on track for about 6.7% growth. (5) Property value appreciation in China is at a record high of 11.2% across 70 major cities. This may fuel a scare of inflation in China, the world’s second largest economy. (1) Tensions between India and Pakistan are increasing even further, as Pakistan has put a ban on Indian content on the TV and radio. (1) BHP Billiton, the third largest mining company based out of Australia sees a potential for a rebound in the stagnant commodities market. This is the result of a stronger than expected price of iron ore as well as metallurgical coal. (1)
Latin America: The UN Economic Commission for Latin America and the Caribbean, or ECLAC, revised its forecast for Latin America downward on Wednesday, saying that the region’s gross domestic product (GDP) would contract 0.90 percent this year. (6) The GDP of South America, whose economies specialize in primary goods like oil, minerals and agricultural commodities, is expected to contract 2.2 percent this year due to a drop of 8 percent in Venezuela’s economy. (6) On a positive note, the economies of Central America and Mexico are projected to grow 2.5 percent this year. (6) Carrefour SA, a French retail company, beat analyst third quarter estimates, as a result of robust sales growth in Latin America. (7)
- U.S. stocks edged lower on Monday, despite a major bank posting strong results, as investors looked for news that could justify the market’s levels. (8)
- The Dow Jones Industrial Average fell 51.98 points, or 0.3%, to close at 18,086.40, with shares of McDonald’s Corp.(MCD) topping the losses. (8)
- International equity outflows in japan are at a very high record as investors are losing faith in Abenomics. (9)
- The Dow Jones industrial average rose 139.40 points at session highs before closing approximately 75 points higher, with UnitedHealth contributing the most gains to the tune of 59 points. That said, IBM shaved off about 26 points on the Dow. (1)
- China will get a new Starbucks everyday for the next 5-years. Starbucks Corp. is not concerned about a possible China slowdown. (10)
- For the first time in history, Saudi Arabia sold bonds to global investors, raising $17.5B. The bonds are due to be paid in 5, 10 and 30 years. (10)
- Stock close lower after oil’s 2.7% slide and ECB rate decision (1)
- Verizon fell 2.7 percent after the company posted weak quarterly revenue. (11)
- EBay slumped 11.4 percent after the e-commerce giant reported disappointing fourth-quarter results. The stock slid $3.70 to $28.83. (11)
- Dunkin’ Brands Group fell 3.7 percent after the chain’s latest quarterly revenue snapshot fell short of expectations. (11)
- British American Tobacco PLC made a $47B offer to takeover Reynolds American Inc., which would make for the world’s largest tobacco company by revenue and market capitalization. (7)
- AT&T is in advanced talks to acquire Time Warner, Inc., a move that will combine a vast entertainment empire and network provider. Time Warner stock soar as a result that this move may happen as early as this weekend. (7)
The DJIA is down 16.84 basis points and the S&P500 is down 0.18 basis points, while the NASDAQ is up 15.57 points, ending the week pretty flat with mixed signals about the direction of the economy. Oil prices have risen, which is a good sign as they have been suppressed for quite some time. However, jobless claims have risen this week and 10-year treasury yields have declined.
Contributor: Matthew Scheivert
CNBC: (1), Wells Fargo Securities Economics Group (2), Reuters (3), The Economist (4), The Financial Times (5), Latin America Herald Tribune (6), The Wall Street Journal (7), Morningstar (8), Bloomberg Markets (9), CNN Money (10), Newser.com (11)