Bearish outlook for the US consumer remains one of the driving forces behind a similarly pessimistic view for the domestic economy. Given worsening trends in labor data and uninspiring Retail Sales results, it remains clear that momentum remains to the downside for relevant consumer activity indicators. Such developments may be singlehandedly sufficient in justifying further Federal Reserve interest rate cuts, and indeed markets have clearly discounted aggressive rate reductions. Whether or not the Fed actually follows through with market predictions will very much depend on medium term developments in domestic labor and consumer spending trends.
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Credit Market Last Week Current Change % Change Outlook * DJ Credit Default Swaps 139.7988 151.6468 11.848 8.48% Deteriorating 10 Year Junk-Bond Spread 609 604 -5.0594 -0.83% Improving Credit Card Delinquencies 3.92 3.93 0.01 0.01% Deteriorating Mortgage Delinquencies 5.12 5.59 0.47 0.47% Deteriorating Stock Market Last Week Current Change % Change Outlook Dow Jones Industrial Average 12373.41 12284.63 -88.78 -0.72% Deteriorating Dow Jones Real Estate Index 248.34 243.5 -4.84 -1.95% Deteriorating Dow Jones Financial Index 538.34 522.41 -15.93 -2.96% Deteriorating Dow Jones Retail Index 102.34 100.29 -2.05 -2.00% Deteriorating S&P Volatility 26.33 26.35 0.02 0.02% Deteriorating Economic Indicators Previous Current Change % Change Outlook Mortgage Applications 28.4 -22.6 -51 -51.00% Deteriorating New Home Sales 1006 1012 6 0.60% Improving Personal Spending 1 0.2 -0.8 -0.80% Deteriorating Personal Income 0.4 0.5 0.1 0.10% Improving PCE 3.6 3.5 -0.1 -0.10% Deteriorating Initial Jobless Claims 322 348 26 8.07% Improving
[B]Improving outlook [/B]means the Federal Reserve could use this indicator to support a rate hike. The opposite stands for a deteriorating outlook.
[B]
CREDIT MARKET: HOW IS IT DOING?[/B]
[B]A DEEPER LOOK INTO THE CHANGES THIS WEEK:[/B]
Falling interest rates have done little to stimulate growth or to improve sentiment in the lending market. Credit default swaps rose to a record high Wednesday as testimony from Fed Chairman Bernanke and Treasury Secretary Paulson last week rung in investors’ ears. With the Fed expecting worsening conditions in lending and growth, demand for credit will struggle.
Short-term money market assets struggled through another week of falling rates. Demand at the short-end of the yield curve persisted thanks to demand from lenders looking to cover their long-term liabilities with short-term debt. With rates LIBOR rates testing new, multi-year lows, it is clear the market is calling on the Fed for another aggressive rate cut in March.
[B]STOCK MARKET: HOW IS IT DOING?[/B]
[B]A DEEPER LOOK INTO THE CHANGES THIS WEEK:[/B]
Breaking the Dow down, there were few sectors that were bucking the market’s bearish momentum. However, there were a few standout underperformers in the mix. This past week’s consumer-centric data hit the retail sector disproportionately as vital domestic consumption threatens to plunge faster than the rebound in foreign orders can fill in. The other, hard hit sector was the Financial group. A few, new writedowns from major banks suggests there is still a considerable pool of assets out there that have yet to be assigned a market-calculated value.
Though the broad market as rather reserved in its weekly decent, the financial sector was looking at substantial losses. The top fundamental headline for group were reports that major bond insurers would split, leaving the credit rating on their core business safe and allowing the subprime and hard hit ABS groups to fend for themselves. While this would salvage the overall firm’s credit rating, it would also almost certainly lead to significant downgrades on $580 billion in assets and further roil the credit markets.
[B]U.S. CONSUMER: HOW ARE THEY DOING?[/B]
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[B]A DEEPER LOOK INTO THE CHANGES THIS WEEK:[/B]
