Welcome to the second quarter! Market participants felt as if they might have been riding on a rollercoaster as the market gyrated in a number of different directions and speeds as it progressed through this holiday-shortened week.
The biggest news of the week was released on Friday, when most European markets and the US equity market were closed for Good Friday. The US Employment report was a mixed bag of information with the positive news being another drop in the unemployment rate, down -0.1% to 8.2% from 8.3%, while the number of jobs created, though positive and significant, was weaker than expected at +120k, versus the consensus number of +205k. This was the twenty-fifth consecutive month of job creation but it was also the first time since November that the number of jobs created was less-than +200k.
Due to the timing quirk of the Employment report being released on Good Friday, the market’s reaction was interesting to say the least. Though the US equity markets were closed, the futures markets were actually open for 45 minutes following the release of the report. Not surprisingly, all the futures markets were down; the Dow was off -120 points; the S&P 500 was down -16.20 points; and the NASDAQ was down -28.50. We will have to wait until the next full trading session on Tuesday to see what the full fallout from the report will be since Easter Monday is a holiday in many places in the world, although a regular workday here in the US
The week had started out on quite a strong note as both the Dow and the S&P hit multi-year highs, at 13,297.11 and 1,422.38, respectively. The NASDAQ had previously hit a multi-year high last week. During the week, we received the minutes from the last FOMC meeting (March 13th), which hinted that the likelihood of additional stimulus via a QE3 had diminished. Both the equity and Treasury markets responded to the news by selling off. Equity prices continued to fall through the rest of the week, though Treasuries began to rally on concerns that Europe was still not quite out-of-the-woods yet, and money moved towards safety.
Net-net, worries about both Europe and a weaker US economy were the prevailing sentiments at week’s end. For the week, the US Treasury 2-year note yield was down 2bps to 31bps; the 5-year note was down 14bps to 90bps; the 10-year note was down 16bps to 2.05%; and the 30-year bond was down 12bps to 3.22%.
It was a similar story in Europe, as the market continued to fret about the long-term health of the European economy. All the major sovereigns sold-off this week with the exception of Germany, which continues to be the safe haven of the continent. The Spanish 10-year note sold off by 41bps, raising the yield to 5.76%; the Italian 10-year was 33bps weaker, bringing the yield to 5.45%; the French 10-year Oat was higher by 10bps to 2.99%; and the uber-safe 10-year German Bund was lower by 5bps, driving the yield to a near record-low yield of 1.74%.
The Portuguese 10-year note snapped its recent winning streak, as it sold-off by 71bps to close back above 12 percent at 12.24%, while the Greek 10-year security continued to struggle, shooting through the 22% handle to peak at 22.19%, before falling back to a still-elevated 21.80%.
The European equity market also highlighted the market’s concerns, as all the major indexes ended the week in the red. The FTSE was off -44.78 to finish as 5,723.67; the DAX slipped by -171.57 points, to end at 6,775.26; and the CAC was down -104.00 to settle at 3,319.81.
What the Fed may announce at its next FOMC meeting (it’s a two-day meeting April 24th & 25th) is now back in the crosshairs of market observers.
In the US, personal Income Taxes are due Tuesday April 17th this year, due to the fact that the traditional tax due-date falls on a Sunday and the Emancipation Day holiday falls on Monday the 16th. Enjoy your two “extra” days of preparing your taxes, or just file form 4868 for your automatic extension to October 15th, just remember to pay any taxes you owe to avoid incurring any interest and/or penalties.
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