The week ending June 27 saw the stock markets generally decline while fixed income generally rose. We believe the Q1 GDP growth revision down to -2.9% for the the first quarter reinforced just how weak Q1 was for the US economy. However, since Q1, data has been mostly positive. We see unemployment continuing to improve, though consumer spending is lagging slightly. On a positive note, we believe markets were helped somewhat by strong US housing market data early in the week. The housing market was showing mixed signals in prior months, but this week’s data appears positive for both volumes and prices. Nonetheless, the bleak Q1 growth number weighed on markets after a particularly strong run in prior weeks.
Internationally, prices in Japan rose +3.4% in May, the highest rate in 32 years suggesting that Japan’s painful battle with deflation may be coming to an end. However, much of the increase was due to a hike in the consumption tax rate and so the surge in prices may moderate over time. Oil prices fell as the violence in Iraq appears to have impacted crude production less than anticipated.