U.S. and World News
- Once an economic powerhouse due to the auto industry, Detroit has filed for bankruptcy. It is the largest municipal Chapter 9 filing in U.S. history and occurred after emergency manager Kevyn Orr failed to strike a deal with creditors over restructuring up to $20B in debt. Orr wrote that following “decades of fiscal mismanagement, plummeting population and employment and a decaying city infrastructure, Detroit today is a shell of the thriving metropolis that it once was.”
- The fiscal situation locally doesn’t appear to be rosy either as the City of Chicago had its general-obligation debt rating cut by Moody’s by three notches with a negative outlook. Contributing to the rating cut was a retirement fund deficit north of $36 billion and unrelenting public safety demands on the budget. Moody’s went on to state, “Absent significant growth in the city’s operating revenues, escalating pension funding requirements will increasingly strain the city’s operating budget, as pension outlays compete with other spending priorities, including debt service and public safety.”
- Greece’s parliament narrowly approved the latest set of Troika-mandated austerity plans, paving the way for the country to receive the next tranche of its bailout. Happening against the background of a general strike and nationwide protests, the program includes wage cuts for civil servants and putting them into a “mobility plan” prior to forced transfers or layoffs.
- Stock markets posted another positive week as the S&P 500 Index rose 0.71%, closing at 1692. The Dow Jones Industrial Average was up 0.51% to close at 15,543. After this week’s rally, the S&P and the Dow respectively are up 18.64% and 18.62% year to date.
- Treasury yields fell again this week on continued dovish comments by Fed Chairman Ben Bernanke. The 5 year and 10 year treasury finished the week at 1.30% and 2.48% respectively. Interest rates continue to be quite volatile and are swinging on nearly every comment about the Fed tapering their asset purchases.
- The spot price of WTI Crude Oil continued its summer surge as prices increased by 2.3%, closing at $108.37 per barrel. Year to date, oil is up 15.6%.
- The spot price of Gold continued to recover this week, rising by 0.7% and closing at $1295.17/ounce. Despite the gains, gold is still down 22.7% this year.
- Weekly Initial Jobless Claims dropped this week, falling by 26,000 and came in at 334,000 vs. expectations of 345,000. However, the Labor Department noted that seasonality factors may have distorted the data. The 4-week moving average of jobless claims moved down to 346,000.
- Second quarter earnings announcements have begun with 82 companies in the S&P 500 having reported. Thus far, 77% of them have exceeded expectations for bottom line earnings while only 55% have beat expectations for top line sales. So far the disappointing revenue numbers have been the result of a number of factors including currency effects for multinational companies and weak demand. Next week is the biggest reporting week of the 2nd quarter season with 157 firms representing 27% of the size of the S&P 500 reporting.
Fact of the Week
- The proposed Keystone XL Pipeline that would allow oil to travel from Alberta to Nebraska could result in significant savings at the pump if it is approved and constructed. The Financial Times estimates that the cost of moving oil from Canada across the USA to refineries on the Gulf of Mexico costs $5 per barrel if moved via pipeline but costs $20 per barrel if moved by rail.
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