The H Group Blog

Investment and Financial Planning news from some of the best in the business.

Weekly Review - April 20, 2015

Weekly Review - April 20, 2015

Guest Post - Monday, April 20, 2015


  • Economic results on the week were in keeping with the recent lackluster trend, with weaker-than-expected retail sales and manufacturing. Inflation came in a bit stronger, but remains flat to slightly negative on a year-over-year basis when energy price declines are considered.
  • Equity markets lost ground last week upon a variety of factors later in the week, not helped by challenging economic data. Bonds rose on lower interest rates, while commodities generally were aided by a weaker dollar and rising oil prices.

Economic Notes

(-) Retail sales for March came in positively but still weaker than expected, gaining +0.9% versus an expected +1.1%. Auto sales represented a near-3% gain for the month and building materials also rose strongly—the removal of which resulted in an even lighter result for core sales, which gained only +0.3%. A few areas showed stronger gains than the broader index, including clothing, while electronics and non-store retail/online lost ground during the month. Additionally, January and February sales were revised downward a bit. Year-over-year, sales are +1.3% higher, with increases of +5% from autos, building/garden materials of +6% and a +8% gain from restaurants.

(-) Industrial production for March came in weak, falling by -0.6%, which was about twice as bad as the expected -0.3%. In fact, it's the worst decline since 2009 on a one-month basis, although the culprit appeared to be a drop in utilities production (by -6%) as March came in warmer than February. Motor vehicle output rose +3%, although other elements of manufacturing production fell by a tenth. Oil/gas well production continue to decline as a segment of this (down -18%). Capacity utilization came in at 78.4%, which was a half-percent below last month and two-tenths below forecast.

(0) Business inventories for February rose a tenth more than expected, up +0.3% from the prior month. Retail inventories were the biggest gainer in the group.

(-) The NY Fed's Empire manufacturing index for April declined -1.2 points, in contrast to an expected +7.2 increase. Components in the index were weak in line with headline, as employment, workweek length and new orders all dropped by several points. By contrast, shipments and capex spending plans rose dramatically.

(+) By contrast, the Philly Fed survey for April came in at +7.5, beating consensus by +1.5 points and the prior month by +2.5 points. The employment and shipments components improved by several points, while new orders for the forthcoming months fell, as did expectations for capital spending—albeit remaining in strongly positive territory.

(0) The producer price index for March rose +0.2% on both a headline and 'core' ex-food and energy level, which was on target with forecast. Among the more extreme culprits, gas station margins fell by -4%, as did transportation services overall, while food prices also fell a percent. By contrast, energy rose +1.5%, netting out much of the difference on a headline level. Year-over-year, headline PPI declined -0.8%, while the core measure rose +0.9%—obviously both of which showing very weak inflationary pressures in the pipeline.

(0) The March consumer price index rose +0.2% on both a headline and core level, both of which were as expected. In looking at the most significant components, gasoline prices rose +4%, while food declined by a few tenths. In the core, real estate-related components (shelter, 'owners' equivalent rent and rent of primary residence) all rose in the +0.3% range, as did medical care and apparel by close to a half-percent. Used car sales increased over +1% as one of the biggest gainers. Year-over-year, headline CPI remains negative, at -0.1%, while the core number that obviously excludes the extreme declines in crude oil over the past year, remains positive at +1.8%.

(-) Housing starts in for March were positive, although weaker than expected, rising +2.0% to 926k for the month compared to an anticipated +16% gain. Single-family starts rose by +4%, while multi-family fell by nearly -3%. Geographically, starts in the South and West fell, while Northeast and Midwest activity picked up after the winter doldrums. Building permits fell -5.7%, which disappointed relative to the forecasted decline of -1.9%

(+) The NAHB homebuilder index for April rose +4 points from the prior month to 56. This was the first increase in a quarter, and showed strength in all key areas of present and future sales, as well as prospective buyer traffic.

(-) The NFIB small business optimism index fell to almost -3 points from February's 98.0 reading (and expectations for no change) to 95.2 for March. All segments of the index came in weaker, with expectations for an improving economy falling the most, along with job openings. However, the proportion of firms raising worker comp over the last quarter rose a few points.

(+) The preliminary University of Michigan sentiment survey for April improved from last month, rising almost +3 points to 95.9 (a minor increase to 94.0 was expected). Current conditions and future expectations both improved by roughly the same amount, bring year-over-year improvements to a decent level. Expectations for inflation have fallen somewhat, as has headline inflation, as the 10-year ahead expectations for inflation fell a few tenths to 2.6%.

(+) The overall of leading economic indicators, reported by the Conference Board, showed an increase of 0.2% for March. Similarly, the coincident indicator index rose 0.1% and lagging indicators rose +0.4%. For the leading group, improvements in jobless claims and yield spread outweighed a detracting contribution from lower building permits. The index of leading, coincident and lagging indicators is essentially a compilation of different data points we already track and comment on, but these series do have some useful value from a 30,000-foot level in pinpointing general areas of strength or weakness from a historical correlation perspective. As seen below, the overall progress has been relatively steady and positive from the depths in 2009.

The Conference Board Leading Economic Index chart

(0) Initial jobless claims for the Apr. 11 ending week rose to 294k, which disappointed expectations calling for 280k. Continuing claims for the Apr. 4 week had the opposite result, falling more than expected, to 2,268k, a new low point in the recovery (compared to 2,323k expected). No unique factors appeared to play into results, per the Department of Labor.

(0) Lastly, the April Fed Beige Book of anecdotal conditions for banking regions around the country showed a slight weakening in conditions compared to the prior month. In looking at the twelve Fed districts, 8 showed moderate-to-modest expansion in activity. Boston and Cleveland were less buoyant, while Atlanta and Kansas City showed 'steady' economic conditions, as opposed to growth. In other areas of focus, consumer spending was mixed with a cold winter playing a negative role, while manufacturing activity was also affected—in addition to headwinds of the strong dollar and falling oil prices (which trimmed rig counts). Speaking of which, employment was a bit weaker overall in this report, with layoffs in the energy space, and some modest wage pressures elsewhere.

The IMF provided their updated forecasts—3.5% for 2015, which is up a tenth from last year's pace (led by developed economies, which are over a half-percent higher at an expected 2.4% growth rate; emerging market expectations are a few tenths lower than last year at 4.3%). One wouldn't call the current growth environment robust, but within a similar range experienced during the last several years, and about 2% lower than the pre-crisis period.

Market Notes

Period ending 4/17/2015

1 Week (%)

YTD (%)




S&P 500



Russell 2000









BarCap U.S. Aggregate



U.S. Treasury Yields

3 Mo.

2 Yr.

5 Yr.

10 Yr.

30 Yr.



















U.S. stocks came in about a percent lower on the week, mostly due to a poor ending on Friday. An odd Bloomberg outage the prior night raised concerns during foreign trading and subsequently, spurred selling, and the sentiment carried over to our shores. Overall, earnings reports weren't terrible, and outperformed expectations somewhat, although it's still early in the reporting season. From a sector standpoint, energy led due to strong oil dynamics, followed by materials and financials; industrials and consumer cyclicals lagged, but the bulk of sectors were in a tight band around each other.

Foreign equities fared a bit better, with the dollar weaker by about 2% as measured by standard indices. Emerging markets experienced with another strong week and year-to-date gains have reached nearly 10%, with strong performances from Russia and Brazil (upon higher oil). Highlights were new concerns that Greece will miss an IMF payment on May 1, after asking for an extension and being denied. A Morgan Stanley report issued last week stated an almost 1-in-2 chance of Greece exiting the Eurozone, although other economists/strategists feel such an outcome is less likely, so this drama continues as it has for several years. Regardless, this cast a shadow on European returns, with Japan's ended up just under flat as their national pension fund announced an dramatic increase in the allocation to Japanese equities from 12% to 25%.

Chinese equities have been on a tear in local terms, due to increased liquidity from mainland China-to-Hong Kong linkages; however, regulators responded to this boom last week with restrictions on margin buying and increased availability of shares for short selling purposes (thought to provide a counterweight to investor bullishness in a given market).

Chinese GDP for the 1st quarter came in at 7%, the lowest in six years, and almost exactly where the regime predicted it would (the typical precision is uncanny, you might think). This is compared to 7.5% or so estimates from recent years—perceived by some as a weakness, but, also, the economy is maturing and slowing, and as economics would predict, the large amount of overall debt is perhaps becoming a drag on economic growth. More recent data on industrial production fell dramatically, to its lowest level in seven years, although still at a 6% year-over-year growth rate. However, it appears the growing service sectors may in much better shape than segments of the industrial economy. All-in-all, as China continues to be a major growth engine for the world economy, the progression of this 'soft' or 'hard' landing continues to be closely watched—with policymakers there seemingly careful of fueling a credit bubble by adding too much stimulus, while, at the same time, careful to add targeted liquidity and accommodation in areas needed. After that was written, in fact, PBOC officials lowered reserve requirements Sunday by a percent from 19.5% to 18.5% in doing just that.

U.S. bonds gained as interest rates ticked down on the week by about 10 basis points. As expected, longer duration issues outperformed, while the majority of other investment-grade domestic debt gained in line with the BarCap Agg. High yield and bank loans came in a few basis points behind, albeit still positive. A decline in the U.S. dollar normally helps the returns of foreign fixed income issues, and did in developed markets, but wider spreads in emerging markets reduced some of this benefit.

Commodities gained as energy overall rose 8% on the week, with help from both oil and natural gas contracts. WTI crude inched back upward again from the low $50's to near $56 at Friday's close, as news of some slowing U.S. production (mostly through expected lower output from shale plays) was coupled with the takeover of a refinery in Yemen by militants. Industrial metals also gained slightly, while agricultural commodities bucked the trend by weakening as wheat prices fell by almost as much as oil gained. Forecasted heavy rains in the Southern Great Plains are hoped to reduce the impact of drought in the area, which is good news for growers, but a damper on pricing.

Have a good week.

Sources: FocusPoint Solutions, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger's, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder's, Standard & Poor's, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research. Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends. Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.

The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness. All information and opinions expressed are subject to change without notice. Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product. FocusPoint Solutions, Inc. is a registered investment advisor.

Notes key: (+) positive/encouraging development, (0) neutral/inconclusive/no net effect, (-) negative/discouraging development.

Additional Reading

Read the previous Weekly Review for April 13, 2015.

Trackback Link
Post has no trackbacks.

* Required

Subscribe to: The H Group SALEM Mailing List


Recent Posts