Ben, Mario, and the BLS
Today was the beginning of a three-day, cross-Atlantic news flurry. Reports from the Federal Reserve, the European Central Bank, the Bank of England, and the Bureau of Labor Statistics will be key to the rest of this week’s trading.
The Fed wrapped up its two-day policy meeting this afternoon by saying, more or less, the same things it said last time. Ben Bernanke’s committee still sees a weak economy and again promised unspecified assistance at unknown times for unpredictable reasons.
Across the sea, ECB president Mario Draghi is under the gun to fulfill last week’s pledge to preserve the Euro currency by doing “whatever it takes.” What it will take, as far as we can tell, is divine intervention. Sovereign debt yields are at unsustainable levels in both Spain and Italy, but Germany seems unlikely to let the ECB provide any help at tomorrow’s meeting. A Euro break-up again seems only a matter of time. The Bank of England’s governors, who also gather tomorrow, will no doubt rejoice in the long-ago decision to avoid the Euro mess.
Friday the focus shifts to Washington and another monthly BLS jobs report. A similar release today from ADP Employer Services suggests hiring may have risen slightly in July. The unemployment rate seems likely to hold steady at an unhappy 8.2%. If so, the jobless rate will have been above 8% for 41 consecutive months.
Stock benchmarks retreated following the Federal Reserve’s failure to give instant gratification. Treasury yields changed directions a few times before rising into the close. U.S. government securities seem to be growing more volatile. The ten-year yield went as low as 1.39% and as high as 1.59% in the last week before closing at 1.54% today.
The inflation picture was mixed at today’s close, with gold pulling back but crude oil rising. The Treasury department is apparently unconcerned. Officials today revealed they are preparing for negative-yield bond auctions. There is also a new plan to create floating-rate Treasury notes.
With TVs tuned to the Olympics and top money people on vacation in August, the latest news could have a delayed reaction. A summer break – for those who can afford one – is probably a welcome chance to disconnect. Reality will be here when they return, however, and is unlikely to look any better.
The Sector rankings still have a defensive character, but some growth-oriented groups are moving up the ladder. Telecommunications regained the lead after a one-week break. The sector’s July 23-24 sell-off proved transitory, and the group is already at a new 52-week high. Utilities slipped to second place despite gaining momentum in the last five market days. Consumer Staples, Health Care, and Energy are close behind. The latter two are in a virtual tie for the #4 slot. The lower half of the chart is well behind the first five, but all show at least slightly positive trends. Financials and Industrials are the best of the laggards, followed by Consumer Discretionary, Technology, and Materials in last place.
Our Style rankings remain very much in flux. This week we see overall improvement, with all nine of last week’s negative momentum categories flipping to zero or better. The previously dominant capitalization-weighted pattern began fading more than a month ago. A nascent inverse-cap pattern failed to reach maturity, so now the former cap-order is trying to reassert itself. Mega Cap holds the lead followed by the three Large Cap categories. The next two slots are held by Mid Caps, but then the pattern begins breaking up. The three Small Cap groups are sandwiched below Micro Cap and above last-place Mid Cap Growth. Turn those last five on their head and the pattern would be complete. Value continues to lead Growth at all size levels, most obviously in the Mid Caps.
The Pacific ex-Japan category extended its lead after taking the top spot away from the U.S. last week. All four components (Australia, Singapore, Hong Kong, and New Zealand) posted strong gains. Weakness in the greenback worked against the U.S., but the world’s largest stock market held on to second place. The next four categories all shed the negative ratings they held a week ago. World Equity stayed at #3 while Canada moved up one position to fourth. Strength in the Energy sector and the Canadian Dollar helped Canada’s climb. The United Kingdom’s struggles in the Olympic medal race carried over to its fifth-place stock market ranking.
The EAFE developed market benchmark is this week’s pivot point and aptly sports a momentum reading of zero. This punctuates the picture of five positive global groups, one neutral, and five negative ones. The leading laggards are the non-developed trio of Latin America, Emerging Markets, and China. Europe exploded to the upside last Thursday and Friday following the Draghi comments, but it was so deep in the hole that even a 10% surge only raised it one notch higher. Japan completed its journey to the bottom of the ranks and can now go no lower on a relative basis. Muted bounces in both the Yen and Japanese stocks were not enough to keep pace with the rest of the world.
…blah blah extended period blah blah sluggish blah blah will do whatever necessary blah….
FOMC – reader’s choice, pick a date in the last 12 months
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