Weekly Economic Summary - February 26, 2010
OVERVIEW ~ During the holiday-shortened week of February 16th through 19th, the Dow Jones Industrial Average (DJIA) moved to higher ground every day, beginning at 10099.14 on Friday (Feb. 12th) and rising ultimately to 10402.35 on Friday, February 19th. Setting aside for a moment their concerns about the debt crisis in Greece, investors dove back into the stock markets because of recent declines and because most of the economic data over the course of the week suggested the economy was strengthening. Good news about the economy, of course, tends to send today’s interest rates a bit higher. The 10-year Treasury note began the week at 3.691% and ended it at 3.782%. But the Freddie Mac average mortgage interest rate barely moved, ending its Thursday-through-Thursday cycle with its average 30-year fixed-rate at 4.93%, down from the prior week’s 4.97%.
FOLLOW-UP ~ The recent preoccupation with Greece did not entirely fade, however, and will be with us for some time. The good news was that officials of the European Union (EU) pledged to assist Greece in avoiding a debt default. But the assistance has thus far taken the form of demands that Greece tighten its budget. Still, more good news came in the form of very successful bond offerings in Portugal and Spain. Both nations found strong support from investors at home and abroad in their securities.
Note that Greece plans to offer a 10-year note very soon, and the success of that offering will tell us a great deal about the short-term future of the Greek debt problem. If investors are attracted, Greece’s credibility in its challenging efforts to reduce its debts will be affirmed. If not, the country and its EU neighbors may have to scramble to find effective ways of financing Greece’s current budget deficit.
FOCUS ~ The Federal Reserve made a noteworthy decision to raise the rate it charges member banks at its discount window (for short-term emergency loans) from 0.5% to 0.75%. The Fed called it a mere technical adjustment and was quick to add that it in no way was the harbinger of other rate hikes that would affect consumers and the economy more directly. But analysts suspected that the Fed was trying out this relatively benign rate hike to see if stock and bond markets could absorb the change without becoming too rattled. After all, investors are worried that the Fed may very soon stop other programs that have kept rates so low. It has, after all, already committed to stopping its purchases of mortgage-backed securities in March. Will more such actions follow sooner than has been expected? Clearly, the markets are worried about this possibility, even going so far as to worry that the economy may be recovering more quickly than we thought, and stronger signs of recovery may cause federal support to withdraw more quickly. This doesn’t make a great deal of sense in the long run; it’s reflective of very short-term thinking. But it suggests that the worries in the markets may likely keep producing volatility.
OVERVIEW ~ During the holiday-shortened week of February 16th through 19th, the Dow Jones Industrial Average (DJIA) moved to higher ground every day, beginning at 10099.14 on Friday (Feb. 12th) and rising ultimately to 10402.35 on Friday, February 19th. Setting aside for a moment their concerns about the debt crisis in Greece, investors dove back into the stock markets because of recent declines and because most of the economic data over the course of the week suggested the economy was strengthening. Good news about the economy, of course, tends to send today’s interest rates a bit higher. The 10-year Treasury note began the week at 3.691% and ended it at 3.782%. But the Freddie Mac average mortgage interest rate barely moved, ending its Thursday-through-Thursday cycle with its average 30-year fixed-rate at 4.93%, down from the prior week’s 4.97%.
FOLLOW-UP ~ The recent preoccupation with Greece did not entirely fade, however, and will be with us for some time. The good news was that officials of the European Union (EU) pledged to assist Greece in avoiding a debt default. But the assistance has thus far taken the form of demands that Greece tighten its budget. Still, more good news came in the form of very successful bond offerings in Portugal and Spain. Both nations found strong support from investors at home and abroad in their securities.
Note that Greece plans to offer a 10-year note very soon, and the success of that offering will tell us a great deal about the short-term future of the Greek debt problem. If investors are attracted, Greece’s credibility in its challenging efforts to reduce its debts will be affirmed. If not, the country and its EU neighbors may have to scramble to find effective ways of financing Greece’s current budget deficit.
FOCUS ~ The Federal Reserve made a noteworthy decision to raise the rate it charges member banks at its discount window (for short-term emergency loans) from 0.5% to 0.75%. The Fed called it a mere technical adjustment and was quick to add that it in no way was the harbinger of other rate hikes that would affect consumers and the economy more directly. But analysts suspected that the Fed was trying out this relatively benign rate hike to see if stock and bond markets could absorb the change without becoming too rattled. After all, investors are worried that the Fed may very soon stop other programs that have kept rates so low. It has, after all, already committed to stopping its purchases of mortgage-backed securities in March. Will more such actions follow sooner than has been expected? Clearly, the markets are worried about this possibility, even going so far as to worry that the economy may be recovering more quickly than we thought, and stronger signs of recovery may cause federal support to withdraw more quickly. This doesn’t make a great deal of sense in the long run; it’s reflective of very short-term thinking. But it suggests that the worries in the markets may likely keep producing volatility.
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