This article was excerpted from the latest edition of AFP EconWatch. Read the full report.
The two big stories of the week were certainly the employment report and developments in Crimea. The general flavor of the employment report was that it was “okay” but still stronger than expected. As the week progressed, a theme of “bad weather” was becoming a generally accepted cause for any perceived current weakness in the economy and that more positive news was on the horizon. The actual employment report had payrolls up 175k versus an expected 150k gain, with the unemployment rate actually ticking up +0.1 percent to 6.7 percent.
Developments in Ukraine and especially Crimea, caused me to remember the famous words, “Half a league, half a league, Half a league onward, All in the valley of Death, Rode the six-hundred. ‘Forward, the Light Brigade!'” by Alfred, Lord Tennyson. How the tensions will work themselves out has yet to be seen, but after a flight-to-safety on Monday, the markets by and large discounted these events by week’s end.
The U.S. equity markets continue to improve on an increasingly positive economic outlook. The Dow is inching towards its all-time high reached on December 31 of 16,588.25, peaking last week at 16,505.70 (up 14.66 percent over the past year). The S&P broke into record territory, reaching 1,883.57 (up 21.45 percent over the past 12 months) and the NASDAQ hit a new 14-year high of 4,371.71 (up 33.93 percent over the past year).
Over the past several weeks, U.S. Treasury yields have fluctuated as safety has continued to battle economic growth for supremacy. Over the past three weeks, the two-year Treasury yield is up 6bps to 37bps (inferring the Fed will tighten interest rates in the first quarter of 2015); the five-year note yield is up 12bps to 1.64 percent; the 10-year note yield is up 5bps to 2.79 percent (after trading in a range of 2.59 percent to 2.82 percent); and the 30-year bond yield is up 2bps to 3.72 percent.
The average 30-year fixed-rate mortgage fell for the first time in four weeks, falling to 4.28 percent from 4.37 percent, and the average 15-year fixed-rate mortgage fell from 3.39 percent to 3.32 percent.
With credit spreads tightening to the narrowest level since July 2007, corporate bond issuance experienced its second busiest week ever (only trailing the week of September 13, 2013 when Verizon came to market with its record-breaking $49 billion offering). McKesson led the pack with their five-tranche $4.1 billion transaction, followed by Gilead who presented a three-part $4.0 billion package. Ford Motor Credit was also in the market with a two-piece $1.750 billion offering.
In the FX markets, the USD touched a six-week high against the Japanese yen at 103.35, while the Euro reached a 2½ year high against the USD at $1.3915. The market must know I am heading to Europe in the near future, do’h!
Oil prices were a bit volatile last week as they swung in a $5 range and peaked at $105.22.barrel, a five-month high.