Fear reigned this week as stocks declined further in another volatile week. So let’s look at the fears affecting the markets one by one.
First, is the specter of Europe sliding into a third recession in seven years and deflation in the Eurozone. This fear was met head on Friday when the European Central Bank announced expanded asset purchases coming within days.
Second, is a slowdown in Asia, nowhere near stall speed but below their normal stellar growth. This was met head on by China announcing injecting money into the banking system. This came on the heels of some very positive trade figures from China (both imports and exports) on Monday.
Third, is a collapse in world oil prices. While this is a big boon for consumers this coming holiday season it may impact growth in the US. The US has become the world’s biggest oil producer and OPEC is nervous. So nervous in fact that Saudi Arabia and others are pushing not to curtail production in hopes of shutting down drilling in the USA. This may effect jobs and economic growth. While consumer spending may help, a good portion of that will be on imported consumer goods.
Fourth, and this is probably the most concerning, is the apparent spread of Ebola in the US. We can’t afford not to do this right. For the next few weeks we will be on pins and needles until such time as those that might have been exposed pass the incubation period.
On a positive note, Fannie Mae and Freddie Mac are close to a deal with their regulators and lenders to make home lending easier. Things tend to go to extremes and frankly many hardworking young Americans have been shut out of the housing market due to overly tight lending standards.
Of particular note this week:
- The Commerce Department reported that retail sales fell 0.3% in September. Still retail sales are up 4.3% from a year ago.
- The Treasury Department reported that the Federal Deficit fell to 2.8% of the US gross domestic product in the fiscal year ending in September below the average of the last 40 years. Revenues rose 9% while spending only rose 1%.
- Initial claims for unemployment fell 23,000 to 264,000 in the prior week, well below forecasts of 290,000 and a 14 year low. The four week moving average also fell to 283,500.
- The Commerce Department reported that housing starts rose 6.3% in September, more than expected.