The Markets
Investors already on edge about the future of central bank efforts around the globe seemed unnerved by the Bank of Japan's decision not to expand economic stimulus efforts there and arguments over a German court challenge to the European Central Bank's ability to aid weaker eurozone members. The Dow industrials continued to see triple-digit swings, and it was the third week out of the last four in which the S&P 500 has lost more than 1%. Bond markets, under pressure for the last six weeks, suffered from mood swings, especially abroad. The 10-year Treasury managed to rebound from midweek losses, though demand at an auction of 30-year Treasuries was weak.
Last Week's Headlines
- A nearly 2% increase in auto-related sales helped drive up retail spending 0.6% in May, according to the Commerce Department; not counting autos, sales rose 0.3% for the month. Total sales were 4.3% higher than a year earlier.
- After the Bank of Japan declined to inject further economic stimulus through further expansion of its bond-buying program, the yen rose strongly against the U.S. dollar. The BOJ's decision raised concerns that a stronger yen might make Japanese companies less competitive globally.
- Wholesale prices rose 0.5% in May, according to the Bureau of Labor Statistics. The increase was driven largely by the prices of gas, trucks, and food (a 41.6% leap in the cost of eggs was responsible for 60% of the increase in food prices). The May figure brought the wholesale inflation rate for the last year to 1.7%.
- U.S. industrial output was little changed in May. The Federal Reserve said utilization of the nation's manufacturing capacity slipped 0.1% to 77.6%, while industrial production was up 0.1% after declining slightly for two months. In China, factory output slipped slightly in May but was still up 9.2% year-to-date.
- Standard and Poor's raised its outlook for the United States' credit rating from negative to stable, though it maintained its AA+ rating for U.S. debt. Meanwhile, the International Monetary Fund lowered its forecast for U.S. growth in 2014 to 2.7% from 3%, and cautioned that the Fed should be careful about withdrawing economic support too quickly.
Eye on the Week Ahead
Tale of the taper: All eyes will be on the Fed's Wednesday announcement and Chairman Ben Bernanke's press conference afterwards for any guidance on when economic support might begin tapering off. Coupled with key manufacturing and housing data as well as the quadruple witching options expiration at week's end, there's a lot of potential for the news to move markets.
Key dates and data releases: Empire State manufacturing survey, international capital flows (6/17); housing starts, consumer prices (6/18); Federal Open Market Committee meeting announcement (6/19); home resales, Philly Fed manufacturing survey (6/20); quadruple witching options expiration (6/21).
Data sources: Includes data provided by Brounes & Associates. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results.
The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indexes listed are unmanaged and are not available for direct investment.
