Wealth Management Economic Update January 20, 2015

U.S. and World News

  • Switzerland_swiss_250The Swiss National Bank shocked markets this week when it unexpectedly scrapped the cap that it had placed on its currency, the Swiss Franc, relative to the price of the Euro (€). The move is an attempt to fight recession and deflation threats in Switzerland that has resulted from overall economic weakness in Europe. The cost of defending that cap had become extraordinarily high, and with speculation that the European Central Bank could be announcing a large Quantitative Easing program, costs would continue to go up as the Euro would surely continue depreciating. After the announcement, the Swiss Franc nearly immediately appreciated by almost 30% against the Euro and 15% against the US Dollar.
  • India’s central bank also surprised the market with an unexpected cut in interest rates in an effort to improve growth in the country. Central bank Governor Raghuram Rajan lowered the repurchase rate in India to 7.75% from 8%, the first rate reduction in two years, as lower food and energy prices have eased inflationary fears.
  • As of Friday, Americans will be able to visit Cuba without obtaining a license from the Treasury Department. Many US airlines announced plans to seek regular service to and from Cuba. The issue of the 54 year old trade embargo with Cuba remains, as this can only be lifted by Congress and prohibits American companies from doing business in the country.

Markets

  • Equity markets ended with another volatile week. The S&P fell 1.24% and closed at 2,019. Likewise, the Dow Jones trickled down 1.27% and closed at 17,512. Year to date, the S&P and Dow Jones are down 1.92% and 1.75% respectively.
  • Yields in the Treasury markets continued their downward trend. The 10 year Treasury bond now yields 1.84% and the 5 year Treasury bond yields 1.30%.
  • The spot price of WTI Crude Oil rose slightly by 0.23% and closed at $48.47 per barrel. Year to date, the spot price of WTI Crude Oil is down 9.01%.
  • The spot price of Gold rose by 4.68% this week and closed at $1,280.45 per ounce.

Economic Data

  • Initial jobless claims rose from last week, coming in at 316,000 vs. consensus estimates of 290,000. The Labor Department noted no special factors affecting the report. The four week moving average for claims now stands at 298,000, an increase of 7,000.
  • Headline retail sales fell 0.9% in December vs. expectations of -0.1%. Expectedly, gasoline station sales were a drag on retail sales, falling 6.5% in the month.
  • The headline Consumer Price Index declined 0.4% in December, which was in line with consensus. Much of the decline was due to a 4.7% fall in energy prices. Core CPI which excludes food and energy was unchanged in December. Over the past year, both headline and core prices have been very subdued, rising only 0.8% and 1.6% respectively.

Fact of the Week

  • In March 2009, the Congressional Budget Office projected that the taxpayer cost of the August 2008 TARP bailout would be $356 billion. However, a report by the Treasury Department in December 2014 showed an overall $15 billion profit from the TARP program.

Please contact a member of the Wealth Management Department if you have any questions about this information.

Rich Gartelmann CFP® – (630) 844-5730 rgartelmann@oldsecond.com
Jean Van Keppel CFA® – (630) 906-5489 jvankeppel@oldsecond.com
Brad Johnson CFA® – (630) 906-5545 bjohnson@oldsecond.com
Joel Binder, SVP – (630) 844-6767 jbinder@oldsecond.com
Jacqueline Runnberg CFP® – (630) 966-2462 jrunnberg@oldsecond.com
Tamara Wiley, CFP® – (630) 844-3222 twiley@oldsecond.com
Ed Gorenz, VP – (630) 906-5467 ejgorenz@oldsecond.com

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