Market Digest – Week Ending 4/17
Concern about Greek debt financing and new market regulations in China drove global stocks down over 1% on Friday, spoiling an otherwise calm week. Earnings season got off to a mixed start as major financial institutions such as Wells Fargo, Citigroup and Goldman Sachs met or exceeded targets while American Express did not. Oil prices hit yearly highs on expectations that US production will peak soon. A report Friday showed consumer inflation remains low, but marked a second consecutive month of acceleration.
S&P 500: 2,081 (-1.0%)
FTSE All-World ex-US: (-0.2%)
US 10 Year Treasury Yield: 1.86% (-0.09%)
Gold: $1,208 (+0.6%)
USD/EUR: $1.082 (+2.1%)
• Monday – A Telecom industry trade group filed suit to overturn recent net neutrality rules, in what is likely to be the first in a series of legal challenges.
• Monday – Florida Senator Marco Rubio announced his bid for President.
• Tuesday – Nokia said it was in advanced talks to buy Alcatel-Lucent.
• Tuesday – President Obama said he supports removing Cuba as a state sponsor of terrorism.
• Tuesday – Europe’s anti-trust regulator intends to charge Google for violating anti-trust rules.
• Thursday – Etsy shares surged in an IPO which valued the company at over $2 billion.
• Thursday – Greek bonds plunged on fears of an exit from the Eurozone. The two year bond yield rose to 27%.
• Friday – The Consumer Price Index rose 0.2% in March. Core prices are up 1.8% from a year ago.
• Friday – Chinese authorities placed new restrictions on borrowing to buy shares on margin and allowed fund managers to lend shares for short selling. China’s main stock market is up roughly 100% in the last year.
Global stock markets sold off on Friday ahead of what could be a dangerous weekend. New Chinese regulations including curbs on margin lending and allowing mutual funds to lend shares for short selling were announced late Friday. They could cause a sell-off in Shanghai on Monday. With Chinese stocks up roughly 100% in the last year, regulators are taking steps to prevent or minimize impact from a dangerous bubble, but if the rules create a sharp reaction it could reverberate to other markets.
Meanwhile, little progress has been made in Greece, which is heading rapidly toward default unless it receives new aid soon. Greece has been given until May 11 to satisfy creditors with reform measures, but falling bond prices this week could accelerate an outcome. While everyone involved says they want Greece to stay in the Euro, and so far there has always been an agreement to delay a reckoning, the situation has reached a point where a Greek exit is a very real possibility. Europe has bought time to plan for this event, and it need not be disastrous for anyone but Greece. Still, the uncertainty surrounding unknown implications of such an event have markets jittery.
At home, inflation poked its head above ground for a look around. CPI rose 0.2% in March, marking a second consecutive month of similar gains. These are still low levels, but are significant enough to warrant attention. Most economists and media pundits have written inflation off as dead. The market would be happy to prove them wrong. It is hard to argue why inflation would increase now, but it such things don’t always follow common logic. After lagging last year, Inflation Protected securities are now outperforming similar dated Treasuries year to date. We think they are worth owning long-term as a portion of bond allocations.