Despite a strong opening day Monday, stocks ended down for the first week of the quarter. Concerns over Spanish solvency resurfaced, and Fed minutes suggested a lower probability of further monetary easing. US stocks held up better than international. Treasuries were little changed. Gold fell, and the US dollar strengthened.
S&P 500: 1,398 (-0.7%)
MSCI EAFE: -3.4%
US 10 Year Treasury Yield: 2.17% (-0.04%)
Gold: $1,631 (-2.2%)
USD/EUR: $1.306 (-2.1%)
- Monday – The US ISM factory index climbed to 53.4, ahead of expectations.
- Monday – Euro area unemployment rose to 10.8%, and a manufacturing gauge fell.
- Tuesday – Stocks fell as the most recent Fed minutes dampened expectations for more monetary stimulus.
- Tuesday – In another of a series of steps by China to open its currency and markets, China’s securities regulator announced the country would more than triple the amount of funds foreigners can invest in stocks and bonds – though the total remains low at only $80 billion.
- Wednesday – A Spanish debt auction was weaker than expected, with 10 year bond rates rising to 5.66%. Spanish Prime Minister Rajoy said the economy was in “extreme difficulty”.
- Thursday – US unemployment claims fell by 6,000 to 357,000, the lowest since 2008.
- Friday – Markets closed for Good Friday.
It is not surprising to see European debt issues flare up again, though we did not expect it quite so soon. The Spanish debt auction was a disappointment, but hardly shocking considering the underlying fundamentals of the country remain weak. Yields were perhaps artificially low before the auction as a result of the last round of ECB bank lending.
Spain, Italy and Portugal (and to a lesser extent France) will pop in and out of the headlines repeatedly over the next several years. We believe the actions taken by the ECB and the creation of the EFSF are sufficient to buy time and prevent any more Greece-like scenarios for at least the remainder of the year.
The real story lies in the ability of these countries to move toward more sustainable balanced budgets. The economic backdrop in Europe will play a key role in their progress for the next year or two. Unfortunately, most economic data from the continent continues to disappoint.