Thursday May 14

Stocks rise on positive jobless claims data. The S&P and the Dow both rise 1.1% to 2,121 (a new record) and 18,252. Jobless claims beat estimates, and the four week moving average falls to a 15 year low. Data today also showed that producer prices fell slightly, although expectations were for a slight gain. This will have a negative effect on inflationary expectations. As a result, the 10 year yield falls 4 bp to 2.24%. Consequently, the dollar also falls 0.2% and the euro rises to $1.14. A Deutsche Bank FX strategist believes that monetary tightening before September is unlikely as a result of the recent string of weak data that we have seen.

The U.S. dollar is at its lowest level since January which could signify that interest rate expectations are being pushed back as a result of recent weak data. The dollar index closes at 93.20. This index reached a peak of 100 in March, with the euro at $1.04. Now the euro has risen to $1.14, as the dollar index has fallen as a result of a series of disappointing data including GDP, trade balance, and retail sales. Retail sales in April missed expectations for the 5th consecutive month, which signifies that this trend is more than seasonal or “transitory.” Today in particular, the dollar was pushed lower by the decline in PPI, which seemed to have a larger effect than jobless claims (possibly because a monthly indicator has more weight than a weekly indicator).

Today’s data is mixed in terms of the Federal Reserve’s dual mandate. The Fed’s dual mandate is for inflation to be around 2% and for optimal or full employment. Today’s data showed that the PPI (inflation) fell while jobless claims (employment) were very strong. The Fed is getting close to its mandate in terms of employment, however prices are still far off although can change in a faster period of time. Typicalls payroll numbers and the unemployment rate follow the trend of jobless claims. First quarter GDP revisions are due this month, which are expected to be revised downwards to show contraction.

Greece makes a concession to its creditors. The struggling country will privatize its largest port and regional airports. Creditors have pushed for this because it will trim government spending and help Greece’s budget. Syriza previously said it would block all privatizations, which shows that the far left party is rethinking some of its ideals. This is the first sign of tangible progress out of negotiations in weeks and possibly months. For now, the government will hold onto water companies, the post office, and a power company. However, Greece is looking at alternative options to attract investment and funding rather than full privatizations.

U.S. banks are holding more government backed mortgage bonds as a result of new regulations. Holdings in these products have increased $45.3B this past quarter compared to Treasury holdings which have increased only $10.6B. These home loan bonds are guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae. Banks must hold enough liquid, high grade assets as a result of new regulations. Treasuries and backed MBS meet these standards, which may change each week with market values and liquidity.

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Thursday May 14

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