Stocks Swell on Monetary Promises
Last weekend, the G20 stated that they would continue to support global economies which caused stocks to jump earlier in the week. The G20 finance ministers said they would maintain their current plan to stimulate their respective economies with emergency support initiatives although many nations are already recovering. The plan to keep pumping money into the global system in order to spark growth is seen as a positive sign for businesses by most equity markets, and shows the commitment of the world’s largest economies to the current monetary policy strategy.
The Dow Jones Industrial Average was up roughly 1% in early afternoon trading on Friday, reaching its highest levels since October 2008. Positive earnings reports and lower crude oil prices helped to offset weaker economic data on Friday. The Crude December contract was down about 0.4% at $76.67/barrel in the early afternoon. Some cause for caution still remains, with the University of Michigan/Reuters consumer sentiment index declining from last month, which raises concern about the consumer side of the economic recovery and the prospects for retailers in the upcoming holiday shopping season.
Investors continue to hedge against inflation and devaluation of the U.S. Dollar by driving up the price of precious metals. The price of gold is up over 25% while the price of silver has jumped nearly 60% since the beginning of the year. Gold prices traded slightly higher on Friday afternoon to $1,116/ounce.
While precious metals are a traditional place to park capital to offset expected inflation by institutional investors, the current sustained plateau of demand seems broader based of late, with a larger amount of physical metal purchases by new investors both in the U.S. and abroad. Additionally, the recent purchase of 200 metric tons of gold by India’s central bank from the IMF, along with the large Canadian miner Barrick Gold painfully unwinding its massive book of hedges, both suggest that the price of gold will likely continue to rise in the near term.
The University of Michigan/Reuters consumer sentiment index fell to a reading of 66.0 from 70.6 in October. This is the second straight month that the reading has declined which sparks concern as to whether U.S. consumers are onboard with the supposedly ongoing recovery. Rising unemployment and weak wage growth has crimped the U.S. consumer which may hurt holiday shopping this year.
Initial unemployment claims continued to decline this week which gives optimism that things are stabilizing on the labor front. The Labor Department reported on Thursday that initial claims for unemployment insurance fell by 12,000 to 502,000 in the week ending November 7 which is the lowest since January.
National average mortgage rates declined from the previous week to 4.91% in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on November 12th. This is the second straight week that mortgage rates have declined and the lowest they have been in a month. Fixed mortgage rates continue to sit at historically low levels. In the week ending November 6th, the MBA’s seasonally-adjusted purchase index dropped 11.3% from the previous week and was down 22.4% compared to the same time last year. This is the fifth straight week that purchase applications have declined and the lowest the purchase index has been since late December 2000.