Week of May 10 2013 – Weekly Recap & The Week Ahead
“The news just seems to follow the markets.” ~ Jeff Saut
1. GM to invest $16B in U.S. over next three years — GM announcement would add to the $8.5B spent since 2009 and would be well above the $11B that GM and its joint-venture partners plan to invest in China over the next three years.
2. Chinese services PMI falls to 21-month low — Chinese HSBC services PMI has declined to its lowest level since August 2011, falling to 51.1 in April from 54.3 in March. The growth in new orders dropped to the slowest rate in 20 months, while staffing declined for the first time in over four years. The stumble in the services sector, which accounts for almost half of GDP, has added to a deceleration in manufacturing, and has increased concerns about China’s economic recovery.
3. Secular Bull Or Secular Bear Market — below is the chart of the DJIA going back to 1884 as the market rallied to new highs. The question remains is – “Are We in a Secular Bull Or Secular Bear Market”?
3. Australia’s central bank cuts rates — the Reserve Bank of Australia cut rates for the seventh time in 18 months last week, taking the benchmark cash-rate down 25 basis points to a record low 2.75%.
4. German industrial production posts surprise gain — German industrial output rose 1.2% in March, beating economists’ expectations of a small decline, and posting an increase for the second straight month. The breakdown shows manufacturing output climbed 1.4% and energy production rose 4%.
5. Rio Tinto Says China Iron Ore Sales Strong –Rio Tinto’s (RIO) CEO Alan Smith said at a conference last Wednesday that China’s demand for steel will be robust and will continue to expand until 2030 despite fears of an economic slowdown. As a result, Smith expects his company’s iron ore sales to the country will top 147M tons this year, eclipsing last year’s record.
6. Yields on Junk Bonds Reach New Low — WSJ, for the first time ever, the yield on junk bonds (HYG, JNK) has fallen below 5%. The Barclays U.S. Corporate High Yield index fell to 4.97% earlier this week, capping a more than 100 basis point compression YTD, as investors’ insatiable appetite for income in a stingy ZIRP environment has fueled robust demand for relatively riskier assets.
7. Margin debt hits pre-crisis levels — NYSE margin debt hit $379.5B in March, a 28% Y/Y increase as investors borrow money to buy into what has become a famously resilient rally. The concern is that a steep sell-off could snowball if leveraged investors are forced to unwind positions to meet margin calls. Borrowing to buy shares is of course one sign of unbridled optimism, although some believe levering up makes sense in the current environment.
8. AAII Bullish Sentiment Rises For 4th Straight Week — per BIG, last week’s reading of 40.79% represents an increase of 9.8 percentage points from the previous week and is the highest reading since March 14.
The week ahead — Economic data from Econoday.com:
