What Wall Street economists and strategists had to say about key developments on Apr. 22
Bloomberg Businessweek compiles comments from Wall Street economists and strategists on the key economic and market topics of Apr. 22. Kim Rupert and Michael Wallace, Action Economics President Obama is touting financial reform in a keynote speech in New York City on the topic, noting that both Senate and House versions of the bill are significant improvements on previously flawed rules, and [he] prods the industry to join in rather than fight the reform process. As expected, he is railing against taxpayer-funded bailouts and inflated executive bonuses, and [is] in favor of transparency, derivatives reform, consumer protections, etc. On the economy, he expressed optimism but sees more work to do with financial sector reform as its foundation. Treasury yields scrambled back to highs as stocks pared the worst of their losses back to shallow negative territory. The lack of surprises in Obama's financial reform speech may have provided a partial catalyst for the bounce, in addition to the tone extending some olive branches to the financial sector and partisan opponents, which could suggest room for compromise or watering down the legislation to investors. Win Thin, Brown Brothers Harriman Moody's downgraded Greece's sovereign debt by a notch to A3. The only surprise is that it wasn't a multi-notch downgrade. Not sure what Moody's is looking at, but there is no way that Greece can be viewed as a single-A credit. Our model rates it BBB/Baa2/BBB but recognizes that the situation remains fluid (as evidenced by today's upward revision in Greece's budget gap) and that agencies may now overreact on the downside to make up for their missing the boat in the first place. We saw this back during the Asian Crisis. Indeed, Fitch downgraded Greece two notches, to BBB-, on Apr. 9 and maintained a negative outlook. This is the lowest investment-grade rating, and one more would put Greece in junk territory. Fitch has been the most aggressive and was the first to cut Greece to BBB+ from single-A territory back in December. We are moving toward a crescendo of some sort, as these sorts of borrowing costs simply cannot be sustained by Greece. Tim Quinlan, Wells Fargo Securities Sales of existing homes increased to a 5.35 million unit pace in March—the first monthly increase since the initial expiration date of the tax credit, which helped boost buyer demand in November 2009. The pace of both single- and multi-family home sales picked up steam in March. The extension of the tax credit will continue to be supportive of existing home sales until June. The total inventory of homes on the market is also on the rise, growing 1.5% in March. But considering the faster pace of sales, the number of months it will take to sell these homes came down from 8.5 months to 8.0 months. In welcome news to anyone hoping for a recovery in the residential real estate market, average and median sale prices increased for both single-family homes as well as for condos and co-ops. This may reflect a smaller concentration of first-time home buyers in the pool of buyers. Still, single-family home prices remain well below where they were a few years ago and have a long way to go to regain prerecession levels. David Resler, Nomura Securities The U.S. producer price index (PPI) for March jumped 0.7% after declining by 0.6% in February. The headline PPI, which is inherently more volatile than the two key consumer price measures (CPI and PCE price index) has been unusually volatile in recent months. Over the last five months … the PPI has changed by an average of 0.952% (in absolute value). For most of this period, energy prices have been the dominant driver, but in March a 2.4% surge in food prices accounted for most of the headline increase. Across the food items, however, price changes [varied] widely, from declines in dairy products and fresh fruits to increases in most meat protein products and a huge 49.3% jump in prices of fresh and dry vegetables. Beyond the surprising increase in the headline index, the core PPI rose 0.1%, in line with expectations. Among the decliners in that subset, new car prices fell 1.1%. The price index of capital goods was unchanged in March from February and was up about 0.3% from a year ago. Beth Ann Bovino, Standard & Poor's U.S. initial jobless claims dropped 24,000, to 456,000, for the week ended Apr. 17, as the likely holiday-related jump in claims the previous week were unwound. The reading was just under the 460,000 that markets had expected. The number receiving benefits fell 40,000 in the week ending Apr. 10, to 4.646 million, cutting the insured unemployment rate 0.1, to 3.6%. Note, the claims report is for the BLS employment survey week [used to calculate the month's employment report]. Coming in about as expected, the claims report will likely take a back seat to the PPI reading today.