Capital Markets Monitor – June 1st
Posted by drewmiller2 on June 1, 2009
The U.S. government’s confidence game continues to win believers. Equity and credit markets ended May still on fire, with the rally sustained last week, and significant new issuance absorbed. The S&P 500 index posted its strongest three month gain (+25.0%) since June 1933. The yield curve is the steepest in some time, with a record spread between the 10 and 2 year notes.
Despite surging U.S. consumer confidence, consumer economic data remains distressed. Initial jobless claims are holding strong, while continuing claims increased to record levels. At least existing housing sales appear to be stabilizing, though supply versus the current sales rate rose to 10.2 months in April. The summer selling season will be telling.
Durable goods beat with a healthy headline, but the reality was more sobering as gains were driven by a downward revision of March’s number. In fact, companies appear to be cautious with their capital expenditures, as new orders for nondefense capital goods fell 2.0 % after slipping 0.9 % in March.
With the government deficits inciting inflationary flames, we enter June with increasing downward pressure on the dollar. Marching the other direction – in a repeat of recent years – the price of oil and gold are climbing strongly. Oil prices ascent is flummoxing industry veterans who point weak fundamentals and high storage levels. While a rapidly declining North American rig count is bound to have a lag effect on the margin, we note the spike in the domestic offshore rigs. Commodities are certainly showing their resiliency as an asset class.
Capital markets continue to support extraordinary issuance and pricing remains generally healthy. As long as secondary pricing holds, issuers will continue to bring financings to market and remove balance sheet uncertainty. The question issuers must wonder is how long the window will remain open.
