News from Europe Continues to Move the Market

For the week of September 26, 2011 through Friday, September 30, 2011

• Standard & Poor’s 500 Index: -0.44%
• Dow Jones Industrial Average: 1.32%
• NASDAQ Composite: -2.73%

Once again, the market continues its roller coaster this week. Following a sell-off last week, the market posted the biggest percentage gain in more than a month on Monday. On Tuesday, it went higher. On Wednesday, the streak ended, as the European debt fears erased some of the earlier gains. On Thursday, United States gross domestic product was revised up to 1.3% growth for the second quarter. Initial jobless claims also fell by 37,000 for last week to 391,000. Aiding the market, interest rates ticked up for the week. New home sales fell 2.3% below July levels, which were revised up slightly. However, the big news moving the market remains across the pond. It is almost a certainty that Greece will default on its debt. The spotlight was on whether the euro member nations would vote to approve enhanced powers for the European Financial Stability Facility. Germany, seen as the linchpin of the whole process, held a vote and approved the measure on Thursday. There are a few nations left to ratify the powers. Europe is taking necessary precautions to keep the eurozone from collapsing.

Economic Data

• Gross Domestic Product
  • Second quarter GDP was revised up from 1.0% to 1.3% on Thursday.
    • Both consumer spending and exports rose, while imports fell.
    • Expectations were for the revision to growth to be 1.2%.
  • Stronger growth is needed to keep the United States from another recession.
• New Home Sales
  • Sales of new homes fell 2.3% for the month of August to a seasonally adjusted annual rate of 295,000 units.
  • July’s sales figures were revised up, but only slightly.
  • Median home prices have fallen 8.8% year-over-year.
  • Inventory has fallen to 162,000 units, or 6.6 months of supply.
• Jobless Claims
  • Initial claims fell much more than expected by 37,000 to 391,000.
  • The four-week moving average fell to 417,000, a drop of 5,500.
  • Initial jobless claims are volatile.
    • It will take several weeks below 400,000 for the labor market to show significant signs of improvement.
  • Additional declines would be great news for the economy

European Debt Crisis

• The European debt crisis has shifted this week from a fear of Greek default to containing the default.
• The European Financial Stability Facility (EFSF) has asked for enhanced powers in order to stop a financial crisis from spreading past Greece to other nations.
• All 17 member nations must approve the EFSF’s new authority.
• Seen as the biggest hurdle to approval, Germany was able to pass the measures in the German parliament on Thursday.
• The eurozone members are taking the steps to prevent a default from becoming economic crisis that drags Europe’s economy down.

Interest Rates

• After “Operation Twist” began, rates initially declined, but have risen this week.
• The two-year Treasury rose to 0.26%, a decent 10 basis point gain over the all-time low set earlier this month.
• Bouncing off an all-time low of 0.78%, the five-year Treasury leapt 13 basis points to 1.0%.
• The 10-year Treasury jumped 18 basis points to 2.01%, continuing its rise of roughly 30bps since the FED move.
• The 30-year Treasury yield soared 16 basis points to 3.06%, also rising since the Fed’s announcement.

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