Julex Market Weekly 06-30-2013 | US Stocks Ended the Best Second Quarter Since 2009

Top Stories Last Week

• US Stocks Ended the Best Second Quarter Since 2009

The US stock market ended its best second quarter since 2009, with the S&P 500 Index rising 2.36%. The rate on a 30-year fixed mortgage posted a biggest weekly increase in 25 years. The average rate rose 53 basis points to 4.46%. In the week, S&P index rose 0.9%, and MSCI EAFE index climbed 0.9%. The MSCI Emerging Market Index rallied by 3.9%. Gold price declined again by 4.8%. The SPGC commodity index was up by 0.3%. The bond markets gained as well. Barclays US Treasury index rose by 0.5%, and US high yield bonds was up by 0.8%.

• US Mortgage Rates Jumped to the Highest Level in Two Years

U.S. mortgage rates have suddenly jumped from near-record lows. The average rate on the 30-year fixed mortgage soared this week to 4.46% from 3.93% last week. That’s the highest average in two years and a full point more than a month ago. The surge in mortgage rates follows the Federal Reserve’s signal that it could slow its bond purchases later this year. In the short run, the spike in mortgage rates might be causing more people to consider buying a home soon. Rates are still low by historical standards, and would-be buyers would want to lock them in before they rise further. But eventually, more expensive home loans could price some people out and slow the housing market’s momentum, which has helped drive the U.S. economy over the past year.

• The PBOC Extended Funds to Alleviate Cash Squeeze

The People’s Bank of China has provided financing to some financial institutions to stabilize interbank lending rates and will use short-term liquidity operations and existing loan-facility tools to ensure steady markets, according to a statement posted on its website yesterday. It also called on commercial banks to improve their cash management.
The PBOC said in its statement that it would supply liquidity to support banks that have a healthy balance sheet and lend to promising projects if they see a temporary liquidity shortage. The one-year interest-rate swap, the fixed cost needed to receive the floating seven-day repurchase rate, slid 16 basis points, or 0.16 percentage point, to 3.91% in Shanghai. It reached an all-time high of 5.06% on June 20. The seven- and one-day repurchase rates, which reflect borrowing costs between banks, both fell.

• US Housing Markets Continued to Improve

Sales of new homes rose to the highest level in nearly five years in May and a key gauge of existing-home prices surged, indicating substantial strength in the housing sector ahead of recent worries about rising mortgage rates. New-home sales rose 2.1% in May to a seasonally adjusted annual rate of 476K new homes. That was the highest level since July 2008. Separately, the Standard & Poor’s Case-Shiller index showed that existing-home prices in 20 U.S. metropolitan areas were 12.1% higher in April than a year earlier. Home prices posted their largest monthly gain since the Case-Shiller data began, rising 2.5% in April from March in the 20-city index. A strong housing market can ripple through the U.S. economy by driving demand for construction materials, creating jobs and bolstering consumer confidence.

• Japanese Inflation Rate was Higher than Expected

Japan released a slew of economic data that showed early signs that the Bank of Japan’s unprecedented stimulus regime is paying dividends. May’s National Consumer Price Index printed a reading of -0.3% YOY, to beat expectations of -0.4%. So-called core price index that excludes energy prices, also improved from the prior period with a flat reading (0.0%). Other released data include an unchanged unemployment rate of 4.1% – the lowest level since October 2008 and a strong 2.0% increase in industrial production and 1.5% increase in retail trade. Disappointing was the -1.6% contraction in household spending. Altogether, the pickup in price trends offers very early evidence that BoJ Governor Kuroda and Japanese Prime Minister Shinzo Abe’s economic and monetary policies are having their intended effect. For the market, the top concern is whether the central bank will maintain pace and potentially upgrade their efforts to accelerate the path to inflation and steady growth.

• Gold Prices Set for Worst Quarter

Gold prices headed for their worst quarter with a 25% drop through June as the European debt crisis and the scheduled rollback of bullion-friendly stimulus measures in the US hurt the metal in the absence of robust Asian demand. The precious metal has lost around 15% in the US since last week when Fed chairman Ben Bernanke laid out a road map to scale back the central bank’s $85 billion monthly bond purchases, buoyed by the strong recovery in the world’s largest economy. Physical gold demand in India, the world’s top consumer, has remained subdued since mid-May in the absence of any festival.

Top Stories to Watch This Week

• US Nonfarm Payrolls and Unemployment Rate

The US nonfarm payrolls are expected to dip to 165K in June from May’s 175K. The jobless rate may edge down to 7.5% from 7.6%.

• ECB and BOE Meetings

European Central Bank and Bank of England are expected to hold interest rates steady.

• US and Chinese PMI Manufacturing Index

China’s Purchasing Managers’ Index is expected to be 50.2 and the US ISM manufacturing index may climb to 50.1 in June.