July 3, 2013 Update

DJIA:14,932 S&P 500:1,614 NASDAQ:3,433 Gold:$1,247 Oil:$101.07 EURO:$1.30 YEN:99.78

The Search for Macro Economic Balance

The financial crisis resulted in multiple large-scale macroeconomic imbalances that have lingered throughout the global economy ever since the bubble burst in 2008. As the credit crisis persists and the global financial system remains imbalanced, unemployment levels are rising, cheap credit is still encouraging irresponsible borrowing, and trade deficits are growing as the demand for imports are declining. In order to restore some sense of economic equality in the United States, I believe the attitudes that corporations and consumers have towards financial responsibility will have to change. At some point, I think corporations will have to start spending and consumers will have to begin sacrificing and cease living in excess. Similar to the way a person’s perception of life changes after experiencing a crisis, the 2008 meltdown of the global economy served as the critical point for the way in which institutional and retail investors view the markets. Never before have so many people felt comfortable with highly leveraged positions in a market that provides so little return for so much systemic risk. In order to return to the “old normal,” I think people have to accept life in the “new normal,” which could mean accepting  reality and cutting back on lifestyle consumers can no longer afford.   

Domestic News

• Market Update Stock futures are tumbling ahead of economic data from the rising cost of oil, turmoil in Egypt and Portugal, and from downbeat data from China. 
• The MBA mortgage applications came in at 11.7%, which is a 3% decline from the previous week. 
• The ADP nonfarm payroll will be released at 8:15, and is expected to have grown to 165,000 in June vs. May’s 135,000.
• Weekly jobless claims will be released at 8:30, economists expected unemployment to hover around 345,000.
• The Institute for Supply Management non-manufacturing index will be released at 10:00, and is expected to rise 54.4% in June vs. May’s 53.7%. 

International Updates

Asia

• Market Update More downbeat Chinese economic data caused the markets to trade lower, with  Hong Kong’s Hang Seng Index falling 2.5%. 
• The PMI in China’s services sector fell to 53.9 in June, down from 54.3 in May.

Europe

• Market Update European stocks fell sharply from fear of a government collapse in Portugal. 
• The Portuguese are worried that their government may not survive the second resignation of a cabinet member. Yields on Portugal’s 10-year government bonds are now above 8%.    

Corporate

• Barclay’s (BARC), Deutsche Bank AG (DBK), and Credit Suisse AG (CSGN) had their credit ratings downgraded by S&P as new rules and “uncertain market conditions” pose threats to the business. 

 Commodities and Forex

• Oil is trading above $100 a barrel for the first time since September. 
• Gold starts to increase as brave investors buy at the lows. 
• The dollar fell from its recent highs, retreating below 100 yen.