Market View – 4/28

I was busy with some other stuff so was unable to post yesterday. The big news yesterday was Ben Bernanke’s press conference. Here are some of the key points I came up with after listening to the press conference

  • The fed will end QE2 at the end of June and after that they will continue to reinvest maturing securities to keep the balance sheet stable, so we are not going to get a slow monetary tightening due to maturing securities.
  • The fed continues to think the current inflationary pressures are transitory. So they are clearly indicating they are more concerned about unemployment and they will take a greater risk on the inflation front.
  • One key thing Ben Bernanke said was that inflation expectations in the public is probably the most important indicator  he will look at to decide if inflation pressures are sustainable. We will get the best reading of inflation expectations from the bond market. Cleveland fed’s inflation expectations tool would be a great resource for watching this
  • Another key thing I gathered was that if the economy weakens Bernanke will not hesitate to do QE3. A reporter asked him what will he do if the economy contracts due to fiscal restraint, he responded that they will respond with monetary policy as is appropriate based on their mandate. To me this an indication that they will do more if the economy weakens. Bernanke did add that at this point he doesn’t see any large affect from fiscal restraint.

So it was a press conference which clearly re-iterated the fed’s easy stance and as expected you saw the dollar fall and commodities rally.

In another news

  • The unemployment claims jumped to 429K for last week. This is becoming a  negative trend as the 4 week moving average moved up to 408.5K. This is kind of bothering me as I think it might be signaling that we are not gaining any momentum in the jobs market. So this is clearly becoming a negative.
  • Pending home sales increased better than expected. This is an indicator of existing home sales which are in the process of getting closed. Over the last few weeks, some of the housing data has come in a little better than expected. This is a positive sign but I doubt this is start of a positive trend. The only positive we can take is that housing may not get a big double dip.

Looking at the negative trend in unemployment claims and that we are getting in the tail end stages of the positive earnings season, I continue to think we are going to get a weak May as the market focus shifts back to macro issues.

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