Both economic releases and financial conditions were divided in direction this week; Bloomberg’s financial conditions index reached a fifth successive new 2 1/2-year high. But corporate credit spreads widened after four consecutive weeks of narrowing. Government bond markets were lower, particularly in the United States. News of a sinking South Korean ship on Friday pared back some of the equity market gains; yet most equity markets finished higher on the week. The U.S. dollar rallied against the European currencies and the yen; adding to the euro woes, Fitch downgraded Portugal’s rating a notch to AA-; S&P had previously downgraded Portugal to A+ in January with a negative outlook. Oil prices closed the week at $80 per barrel.


Former Fed Chairman Alan Greenspan warned that this week’s higher Treasury rates should be viewed as a canary in the mine. Rates were not widening because the U.S. economy had shown so much improvement; investors just wanted more yield to justify holding U.S. sovereign debt. The “miners” that should be heeding the “canary” are the Congress and administration who are responsible for the federal budget. “Cheep cheep …”

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Economic releases

February economic data in the United States was affected by the adverse weather, but not as much as some had feared. In the United States, new and existing home sales fell to 308,000 and 5.02 million, respectively. Durable goods orders rose +0.5 percent and January’s data was revised up almost a point to +3.9 percent; less transportation, durable goods orders increased +0.9 percent in February. Fourth quarter GDP was revised three ticks lower to 5.6 percent. In March, the University of Michigan Confidence Index rose a point to 73.6.

UK’s CPI rose a tick better than expected, 0.4 percent, in February dropping the YOY rate to 2.9 percent. Germany’s IFO indices for business climate, current assessment, and expectations all rose in March. On the other hand, consumer spending in France fell -1.2 percent.

The trailing component of U.S. economic recovery has been jobs. This coming week we will get the U.S. Employment Report for February; the Bloomberg Survey of Economists shows an average forecast of 190,000 increase in non-farm payrolls. If the payroll forecasts are fulfilled, this would come as welcome news.

In the meantime, this week’s release of 442,000 initial jobless claims (blue) showed some improvements as well. The chart below shows a four week average dropped to 453,000, a new low for the year and a decrease of 17,000 since the last week in February. The continuing claims (red with a one week lag) also dropped to 4.648 million. These numbers showed improvement, but the levels were still well above the claims prior to the start of the recession.


Feb 12 Bonds

Sources: Bloomberg LP
Equities markets
Most equity markets finished a bit higher on the week after the sinking of a South Korean Navy vessel pared back gains on Friday.

Mar 26 Equities


Bond markets

Government bond markets were mostly lower, particularly in the United States where new supply and concerns on fiscal policies drove up yields in the belly of the curve. In contrast, France and the UK experienced falling five-year yields.
Feb 12 Bonds


The U.S. dollar rallied against the yen, pound and euro this week. As the quarter-end approaches the dollar is on track to achieve its best quarterly results against the euro since 2008 on problems in both Greece and Portugal.



Feb 12 Bonds



Economic sectors

Large cap value equities and the consumer durable sector had the best performance while mid cap and energy fared the worst on the week. On the quarter, consumer durables and small cap value stocks did the best while telephones and large cap growth stocks did the worst; durable goods, industrials, and financials trailed closely behind consumer durables.

Feb 12 Bonds

Source: Bloomberg LP