TradeTheNews.com Weekly Market Update: Stocks Continue Melt Up On Mixed Data
- Steadily improving US economic data and the budget battle in Washington
dominated headlines this week. The stock market melt up continued, though the
DJIA ended a two-week winning streak on Friday, after closing higher for ten
sessions in a row, its longest winning streak since November 1996. On Thursday,
the S&P500 closed within two points of its all-time closing high of
1,565.15, whetting the appetite of traders eyeing another milestone. For the
week, the DJIA gained 0.8%, the S&P 500 added 0.6% and the Nasdaq rose
0.2%. US indices were off a bit on Friday after the preliminary March
University of Michigan Confidence sagged to a 15-month low on lower future
expectations. But earlier in the week the February US retail sales data came in
at twice the expected gain, proving that US consumers kept spending despite the
higher payroll taxes. The weekly jobless claims numbers fell for a third
straight week, sending the four-week moving average for new claims to five-year
lows. In Europe, Italian political forces again failed to form a government and
European leaders gathered for a summit in Brussels amid challenges to Germany's
push for recommitments to austerity measures. Peripheral yields on 10-year
notes from Spain and Italy decoupled this week, with Spanish yields contracting
and Italian yields rising; the unusual pattern comes after Fitch's downgrade of
Italy's sovereign rating and a somewhat weak three-year Italian auction.
- Last weekend China released January and February data that suggested the new
leadership team in Beijing will have its hands full coping with a complicated
economic situation. High food prices sent February CPI to a 10-month high +3.2%
y/y and 13-month high in the m/m growth figure. Industrial production and
retail sales grew at the lowest rate in several month, while February lending
- In Washington, the Senate Democrats and the House GOP worked on budget
proposals while President Obama continued his 'charm offensive' in hopes of
massaging a deal between the two parties. Rep. Paul Ryan presented the GOP
budget proposal, which would seek to balance the budget by 2023 with $4.6T in
spending cuts. Spending would increase by 3.4% per annum versus 5% presently
under Ryan's plan. The Democratic budget plan presented by Senator Patty
Murray, calls for $1.85T in additional deficit reduction over 10 years, half
from spending cuts and half from tax increases. The plan would increase taxes
on the wealthy and large corporations by closing loopholes and tax breaks.
- The Fed released the second part of its annual bank stress tests this week.
Fourteen of the 18 SIFI banks had their 2013 CCAR capital plans approved.
JPMorgan and Goldman won conditional approval, requiring they rework and
resubmit plans by October, while plans from Ally Financial and BB&T were
rejected outright. BB&T shares slid 3% on Friday, and JP Morgan lost more
than 2% with the addition of bad press from a Senate panel hearing grilling
current and former executives about the "London Whale" trading loss
from last year.
- Shares of Boeing rose 5% this week as the FAA authorized the company's plans
to test and recertify the 787 Dreamliner battery system. Boeing said the
testing should be complete before the end of the month, although there were
reports later in the week that Boeing still does not entirely understand what
went wrong with the system.
- EUR/USD tested its 2013 lows on Wednesday and Thursday around 1.2930 as the
dollar strengthened on better US economic data and US equity gains, both of
which contrast starkly with dismal European data and Italian political
gridlock. On Friday the pair bounced back to the highs seen before the US Feb
payrolls data after Portugal passed its seventh troika review and European
leaders appeared to make progress toward resolving the Cyprus situation.
- Cable came into the week around two-and-a-half year lows and traded even
lower through the terrible January production data. GBP/USD bottomed out below
1.4850 following disappointing production data mid-week but retook the 1.51
handle by Friday. Short-covering ahead of next week's much awaited spring
budget plus comments from BoE's King, who said the BoE was not looking to
deliberately weaken the pound, helped cable recover.
- The yen maintained a soft tone as Kuroda was formally confirmed as the new
BOJ governor along with Iwata and Nakaso as deputy governors. Markets will wait
to see whether the BOJ will hold an emergency policy meeting to launch new
easing measures as soon as late next week.