A quick review of the issues and events driving the markets this past week... and what's on tap for the week ahead.

Weekly Market Snapshot

June 1, 2015

"The ECB will not be the one to unplug the respirator."

—A senior banker on the ECB's willingness to address Greece’s short-term imbalances as bailout negotiations continue (Reuters, May 27 2015)

The week in review...

United States

Business lending: A helping hand Commercial and industrial (C&I) loans rose 8.5% in 1Q2015 from the year-ago quarter, and accounted for about 21% of outstanding loan balances at US banks, the highest level in 13 years. Banks held $8.362 tn of loans on their balance sheets as of March 31, 2015, a 5.4% increase from the same date last year, according to the FDIC. The increase was largely due to C&I lending. Loans tied to real estate construction rose 15%, while home equity loans fell 3.6%, suggesting that homeowners are remaining prudent about managing household balance sheets.

Capital investment: On the rise? Core capital goods orders (i.e., non-defense capital goods orders excluding aircraft) rose 1.0% in April month-on-month (M/m), beating expectations – after an upwardly-revised 1.5% increase in March. Shipments of core capital goods also beat expectations, rising 0.8% for the month.

Startups: Reloaded New business creation had the biggest increase in 2015 over the past two decades, according to the Ewing Marion Kauffman Foundation.  Perhaps more significant, about 80% of those who started businesses reported being driven by opportunity rather than necessity, returning to the level seen before the most recent recession. By age group, the biggest gains have been among 55- to 64-year-olds, making up 26% of enterprises.

Greece

Breathing weekly During the negotiations between Greece and its creditors, the ECB has been making weekly reassessments of the amount of short-term liquidity needed to keep Greece's financial system running. On Wednesday May 27, the ECB kept that amount unchanged – the first time since February it hasn't been raised. One source within the ECB credited a slowdown in deposit outflows. But the emergency funding will likely remain sparse; one banker said the ECB "will not provide comfort to the Greek state to play with its money…".

Asia

China: Tariff cut To help boost domestic consumption, import duties on select imported consumer goods have been reduced by about half. Targeted items range from diapers to fur clothing, leather boots, woolen suits and sneakers. Among the stated goals: raising imports.  Since the tariffs don't affect value-added and consumption taxes, the effect might be limited, according to a government research center.

Japan: Top global lender For the 24th year in a row, Japan maintained its position as the world's largest creditor, with net external assets rising to a record ¥366.86 tn ($3.03 tn). Japan's net external assets were 1.7 times those held by second-place China (¥214.3 tn) and third-place Germany (¥154.7 tn). External debt grew 22.6% to ¥578.42 tn, up for a fifth straight year, helped by increased acquisitions by foreign investors of Japanese equities and other assets.

Japan: Retail sales disappoint April sales rose 0.4% from March's 1.8% decline, worse than forecast. But April's figures were 5% higher than the previous April, suggesting that the effect of last year's hike in consumption taxes might not have had a lasting impact.

Signs of the times:

Coke, PepsiCo supplier Zhongfu to default on bond – Shanghai Daily

China currency is ‘no longer undervalued’, says IMF – Financial Times

Oil Bulls Beware, Soaring Tanker Rates Show Supply Glut Persists – Bloomberg

German consumer confidence at 13 year high – RTÉ News

Rousseff Wins Austerity Breakthrough as Brazil Caps Pensions – Bloomberg

Sources: Bloomberg, Wall Street Journal, Financial Times, New York Times, Shanghai Daily, Xinhua, MNI, RTÉ News

...The week ahead:

GLOBAL ECONOMIC CALENDAR: May 31–June 6, 2015

 

U.S.

Other Americas

Europe, UK, Africa, Mideast

Japan, Asia Ex Japan & Pac Rim

Sun
May 31

 

 

Italy: regional elections

 

Mon
Jun 1

Consumer spending, manufacturing, construction spending

 

Germany: inflation

China: manufacturing and non-manufacturing PMI
Japan: capital spending

Tue
Jun 2

Factory orders

Brazil: industrial production

Eurozone: consumer prices
Germany: unemployment

Japan: monetary base

Wed
Jun 3

Private-sector employment, trade deficit, services growth, Fed’s Beige Book

Brazil: rate decision

Eurozone: PMI, unemployment
Europe: ECB rate decision and press conference
UK: services PMI

 

Thu
Jun 4

Jobless claims (weekly), productivity

Mexico: rate decision

UK: central bank rate decision

 

Fri
Jun 5

Monthly payrolls and unemployment rate, consumer credit

 

Greece: IMF payment deadline
Eurozone: GDP
Germany: factory orders
Russia: consumer prices

 

Sat
Jun 6

Belmont Stakes (horse racing)

 

 

 


Definitions:

The European Central Bank (ECB) is responsible for the monetary system of the European Union (EU) and the euro currency.

The International Monetary Fund (IMF) is an international organization of various member countries, established to promote international monetary cooperation, exchange stability, and orderly exchange arrangements.

The Ewing Marion Kauffman Foundation, based in Kansas City, supports programs and research to help individuals attain economic independence by advancing educational achievement and entrepreneurial success.

Gross Domestic Product (GDP) is an economic statistic which measures the market value of all final goods and services produced within a country in a given period of time.

Purchasing Managers Indexes (PMI) measure the manufacturing and services sectors in an economy, based on survey data collected from a representative panel of manufacturing and services firms.

The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the U.S. federal government that preserves public confidence in the banking system by insuring deposits.

The Federal Open Market Committee (FOMC) is a policy-making body of the Federal Reserve System (the Fed), responsible for the formulation of a policy designed to promote economic growth, full employment, stable prices, and a sustainable pattern of international trade and payments.

The Beige Book is a commonly used name for the Federal Reserve report, "Summary of Commentary on Current Economic Conditions by Federal Reserve District". It is published eight times each year, just before the Federal Open Market Committee (FOMC) meeting on interest rates, and is used to inform the members on changes in the economy since the last meeting.


The opinions and views expressed herein are not intended to be relied upon as a prediction or forecast of actual future events or performance, or a guarantee of future results, or investment advice.

Global investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.

Fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed income securities falls.

Currencies contain heightened risk that include market, political, regulatory, and natural conditions and may not be suitable for all investors.

IMPORTANT INFORMATION:

This material is for information only and does not constitute an invitation to the public to invest in any funds, securities, strategies or other products. You should be aware that the investment opportunities described should normally be regarded as longer term investments and they may not be suitable for everyone.  All investments involve risk, including possible loss of principal. The value of investments and the income from them can go down as well as up and investors may not get back the amounts originally invested, and can be affected by changes in interest rates, in exchange rates, general market conditions, political, social and economic developments and other variable factors. Past performance is no guide to future returns and may not be repeated. Investment involves risks including but not limited to, possible delays in payments and loss of income or capital. Neither Legg Mason nor any of its affiliates guarantees any rate of return or the return of capital invested.  Unless otherwise noted the "$" (dollar sign) represents U.S. Dollars.

Please note that an investor cannot invest directly in an index. Forward-looking statements are subject to uncertainties that could cause actual developments and results to differ materially from the expectations expressed. This information has been prepared from sources believed reliable but the accuracy and completeness of the information cannot be guaranteed and is not a complete summary or statement of all available data. Individual securities mentioned are intended as examples of portfolio holdings and are not intended as buy or sell recommendations. Information and opinions expressed by either Legg Mason or its affiliates are current as at the date indicated, are subject to change without notice, and do not  take into account the particular investment objectives, financial situation or needs of individual investors.

The opinions and views expressed herein are not intended to be relied upon as a prediction or forecast of actual future events or performance, or a guarantee of future results, or investment advice. The information in this material is confidential and proprietary and may not be used other than by the intended user. Neither Legg Mason or its affiliates or any of their officer or employee of Legg Mason accepts any liability whatsoever for any loss arising from any use of this material or its contents. This material may not be reproduced, distributed or published without prior written permission from Legg Mason. Distribution of this material may be restricted in certain jurisdictions. Any persons coming into possession of this material should seek advice for details of, and observe such restrictions (if any).

This material may have been prepared by an advisor or entity affiliated with an entity mentioned below through common control and ownership by Legg Mason, Inc.

This material is only for distribution in those countries and to those recipients listed.

All investors in the UK, professional clients and eligible counterparties in EU and EEA countries ex UK and Qualified Investors in Switzerland

Issued and approved by Legg Mason Investments (Europe) Limited, registered office 201 Bishopsgate, London EC2M 3AB. Registered in England and Wales, Company No. 1732037. Authorized and regulated by the Financial Conduct Authority. Client Services +44 (0)207 070 7444.

All Investors in Hong Kong and Singapore:

This material is provided by Legg Mason Asset Management Hong Kong Limited in Hong Kong and Legg Mason Asset Management Singapore Pte. Limited (Registration Number (UEN): 200007942R) in Singapore

This material has not been reviewed by any regulatory authority in Hong Kong or Singapore.

Qualified domestic institutional investors in the People's Republic of China (PRC), Distributors and existing investors in Korea and Distributors in Taiwan:

This material is provided by Legg Mason Asset Management Hong Kong Limited to eligible recipients in the PRC and Korea and by Legg Mason Investments (Taiwan) Limited (Registration Number: (98) Jin Guan Tou Gu Xin Zi Di 001; Address: Suite E, 55F, Taipei 101 Tower, 7, Xin Yi Road, Section 5, Taipei 110, Taiwan, R.O.C.; Tel: (886) 2-8722 1666) in Taiwan. Legg Mason Investments (Taiwan) Limited operates and manages its business independently.

This material has not been reviewed by any regulatory authority in the PRC, Korea or Taiwan.

All Investors in the Americas:
This material is provided by Legg Mason Investor Services LLC, a U.S. registered Broker-Dealer, which may include Legg Mason International - Americas Offshore. Legg Mason Investor Services, LLC, Member FINRA/SIPC, and all entities mentioned are subsidiaries of Legg Mason, Inc.

All Investors in Australia:
This material is issued by Legg Mason Asset Management Australia Limited (ABN 76 004 835 839, AFSL 204827) ("Legg Mason"). The contents are proprietary and confidential and intended solely for the use of Legg Mason and the clients or prospective clients to whom it has been delivered. It is not to be reproduced or distributed to any other person except to the client's professional advisers.

FN1512254

Previous Editions

Click on a date to view that week's edition of weekly snapshot.

Poll

When will the Fed raise the Fed Funds target rate?








Poll

When will the Fed raise the Fed Funds target rate?

June
(3%)
September
(33%)
November
(23%)
Not until 2016
(41%)



Previous month Poll

Will the current wave of central bank easing jump-start the world's economies?

No - The real issues are structural - real progress on labor reform and regulatory excess will have more impact
(32%)
No - Deflation is already taking hold, making monetary policy changes ineffective
(5%)
Yes - The US model shows that monetary easing can help economies heal in the medium term
(19%)
Yes, but it will take even  longer than it did in the US, and the delay will have a negative political impact
(44%)