Weekly Market Forecast – June 7th, 2010
Happy Monday everyone! Coming out of a chaotic Friday which ended a 4-day trading week, we are looking at a surprisingly calm market. We saw investors react strongly on Friday to a discouraging employment report for May. The reaction by Wall Street now seems a bit over-dramatic, looking back on last week’s economic reports, there was good mixed with the bad. We saw pending home sales numbers rising month-over-month, the unemployment rate beat market expectations, and for all the excitement over the European economic crisis; US banks have very little exposure to European debt; and the most hard-hit parts of Europe are, at this point, non-significant trading partners. One other interesting bit of news? The average change in hours worked per employee ticked up from 34.1 to 34.2 hours, a change that equates to the creation of 315,000 jobs; it appears that, for now, employers are looking to satisfy increased demand for labor with their current workforce instead of adding new employees.
Anyways, we have relatively little economic data coming out this week. The major reports to watch are the New/Existing Unemployment Claims report on Thursday and the Retail Sales and Consumer Sentiment Index reports on Friday. Expectations are that the unemployment data will show a small contraction in new claims and about 60,000 fewer ongoing claims than the last report of 4.66 million. Fun Fact – If you got ONE PENNY from every person on continuing unemployment, you could buy a lovely home in Detroit. MI.
Other Things to watch for this week?
Federal Reserve rate change buzz. Note: I used the word buzz, meaning chatter, excitement or gossip. Our best guess is that by September, we only have a 12% risk of change.
More news out of Europe. This morning, Hungary started in on damage control; stating that the numbers showing impending default were speculative at best. More bad news out of Europe could make investors even more risk-adverse, and positive news may give us a needed boost in confidence.
The market has been unpredictable recently, but rates are extremely low. These rates are being driven lower by poor housing demand, bond preference and government intervention. If any of these factors let up or change, we could see an immediate rebound in rates.