Market Update – June 22

Some of the interesting numbers I came across today…

Big downgrade.  Moody’s downgraded 15 global banks.  That included Bank of America, Citigroup, Goldman Sachs, J.P. Morgan and Morgan Stanley.

Poor Europe.  June was the fifth consecutive month that activity across the euro zone has declined.  According to Markit’s Flash Composite Index, the euro zone’s private sector contracted at its fastest pace since June 2009.  The PMI was at 46 in June and has been below 50 (signaling contraction) for all but one of the last ten months.

Interest rates.  Spain’s five-year bonds are yielding 6.07%, a fifteen-year high.  Contrast that with the French five-year bond which is yielding 1.43%.  On the positive side, Spain’s ten-year bond yield is down to 6.54% (it was above 7% during the past week).  Italy’s ten-year bond is yielding 5.75% (it was above 6% in the past week).

What do you do when you don’t like ratings?  The European Central Bank is discussing a plan to scrap rating rules on euro zone sovereign bonds and instead set their value when used as collateral in lending operations on its own internal assessment.  I’m not sure that I’d trust the internal assessment of a bank that is loaning money to Greece.  But, that’s just me.  (I’m probably wrong.  I heard that the ECB internal assessment rated the Greek debt “two smiley faces”, so it’s probably pretty solid.)

Lower collateral.  The ECB also said that they are going to relax their collateral rules for central-bank loans.  (Regardless of what you think, I’m not making this stuff up.  The ECB reminds me of when I was 21 years old, standing alone in a bar and getting ready for closing time.  When the times get tough, lower your standards.)

China is also slowing.  China’s factory sector shrank for an eighth straight month in June as export orders sentiment hit its weakest level since early 2009.  The HSBC Flash Purchasing Managers Index, the earliest monthly indicator of China’s industrial activity, fell to a seven-month low of 48.1 in June from 48.4 in May.  This is the eighth consecutive month that this index has been below 50.  Of course, slowing growth in China means that investors are “only” expecting 7% growth.

GS issues gloomy forecast on U.S.   “Our forecast implies that the U.S. economy will continue to struggle with slow growth and high unemployment of more than 8% going into 2013. Specifically, we forecast a slowdown in real growth to just 1.5% (quarter-on-quarter, annualized) in the first quarter of 2013.”  It was reported that GS recommended a short position in the S&P 500 with a target of 1285.  (The S&P closed Thursday at 1,325.)

Weak employment numbers.  There are 3.7 unemployed job seekers for each opening, up from 3.4 in March.  For context, this number was 6.7 in July 2009, but only 1.6 in November 2007.

Weak weekly numbers.  Jobless claims declined by 2,000 to a seasonally adjusted 387,000 in the week ended June 16.  Claims from two weeks ago were revised up to 389,000 from an original reading of 386,000.  The four-week moving average of new claims climbed by 3,500 to 386,250, marking the highest level in almost seven months.

The unluckiest state.  Nevada has an 11.9% unemployment rate — half a percentage point higher than second place Rhode Island. Nevada has led the nation in unemployment for 27 months.  Prior to that, Michigan had the highest unemployment rate for 47 months (from April 2006 to February 2010).

Operation Twist.  The Bank of International Settlements estimates Operation Twist lowered the 10-year bond yield by 0.85 percentage point.

Record low mortgage rates.  The 30-year, fixed-rate mortgage rate fell to 3.66%.  The 15-year fixed rate was 2.95% (slightly above the record low).

Raising cash.  A Bank of America / Merrill Lynch survey shows that cash levels are at 5.3% (compared with 4.7% in May).

Weak IPO market.  June is normally a strong month for IPOs (historically third best behind October and November).  But, this is on pace to be the worst June in nine years.  No deals have priced yet.  There hasn’t been a deal since Facebook in May.  The average for June (in the US) is 29.  Four are expected to price before the end of the month.   For the year, US IPOs are down 39% (YOY) to 106. 

Cheap oil.  Brent hit an 18 month low (below $90) and Nymex hit its lowest level (below $80) since October 2011.  Oil is down around 30% and copper is off 15% since March.  Gold dropped 3%.  Silver dropped 5.5%.

Gas prices have dropped.  Regular unleaded gas is selling for $3.50 / gallon.  It was at $3.94 on April 5.

Bloomberg survey.  Forty-five percent of those surveyed in a Bloomberg National Poll say they are better off than at the beginning of 2009.  Thirty-six percent say they are worse off.  Forty-nine percent say they prefer President Obama’s economic vision while 33% prefer Governor Romney’s.

It’s all digital now.  Dow Jones & Co. said it plans to stop publishing the print version of SmartMoney, a personal-finance magazine, although it will expand its digital platform.

Not quite sure how we count these people.  There are 11 million undocumented residents already living in the U.S.

Age 100+.  There were 72,000 centenarians as of late 2010.  There are expected to be 600,000 by 2050.  More than 70% say they get eight hours or more of sleep.  Only 38% of baby boomers make the same claim.

Have a great weekend.

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