What I’m Watching This Week – 25 June 2012

Who invited ‘That Guy’?

It was a mixed picture for U.S. equities last week with benign market actions beginning on Monday into heavy selling on Thursday.  Oh yes, Mr. Volatility decided it was the appropriate time to make an appearance.  Volatility willingly is ‘That Guy’ we all are unfortunately familiar with.

Seven of the nine major S&P sectors recoiled on the week, having to lick their collective wounds from the whooping they took on Thursday.  Global markets were mixed with five of the twelve major Global markets indexes gaining by week’s end, while seven recorded losses.  Psss…‘That Guy’ is here; he hasn’t done something crazy just yet, but give him a few…this is going to be the party of the summer.

The U.S. Treasury indicated that “operation twist” would expand and thereby stimulate borrowing and growth.  Yields on Treasuries reacted with upwards momentum followed by Municipals and TIPS.  Corporate bond didn’t participate in the move and retreated.

Weak economic data cast further doubt on commodities as WTI crude plummeted nearly 5% on the week. Gold sold down 3.5% and the softs were generally weak.  Geopolitical pressures (That Guy) can and most certainly trigger or encourage volatility to the global economy in a time when it is struggling.  The U.S. Dollar continued its advance last week as the Sterling, Swiss Francs, Yen, Aussie and Canadian dollars all pulled back on U.S. dollar strength.  Concerns for economic growth have taken center stage along with a flight to safety; coupled with another higher than expected set of unemployment claims data, the numbers defined in more detail slow growth ahead going into 3rd quarter.

‘That Guy’ is making me more cautious but not nervous.  The general outlook has weakened as the economy struggles, the political incompetence (American That Guy) in regards to a resolution of the “fiscal cliff” facing the U.S. at year’s end.   The European debt crisis (European That Guy) and will European leaders have the courage and resolve to create an enduring solution?   Optimistically, I’m giving allowance that ‘That Guy” will behave himself for the time being or at least until September / October.  He may knock over a table or spill something on the floor or someone between now and then but hopefully he won’t be kicking in doors and knocking holes into the walls immediately.  Mr. Volatility always seems to get invited by someone, and even then he constantly changes his appearance, negating your defenses.  Look for a volatile week ahead…just saying.