FINANCIAL ADVISOR INSIGHTS: Kit Juckes Says Inflation Hawks May Be Caving

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Down Week On S&P 500 Is Just A Blip (Capital Economics)

The S&P 500 will have seen one of its worst weeks of the year when trading closes Friday, but Capital Economics' John Higgins says we should ignore it. "We only expect the S&P 500 to fall to 1,500 by the end of 2013, before rallying to 1,600 in 2014. After all, with growth at home showing signs of slowing and inflation signs of easing, the Fed is unlikely to be in any rush to halt its asset purchases altogether. Meanwhile, an actual rate hike still seems a very long way off."

KURODA: The G-20 Blessed Japan's Quantitative Easing Program Today (Business Insider)

Bank of Japan Governor Haruhiko Kuroda emerged from a G-20 meeting today saying group members are willing to let him continue the bank's asset-purchasing program. As a result, the dollar was up 1.4% today against the yen. Kuroda explained that member nations' leaders understand quantitative easing is needed in order for Japan to achieve price stability. Here's the chart showing the plunging yen:

dollar yen

California Distressed Home Sales Hit Lowest Since Sept. 2007 (Calculated Risk)

Just 15.2 percent of all California homes sold last month had been foreclosed on during the past year – the lowest level since September 2007, when foreclosure resales were 12.6 percent of the market. Last month’s figure compares with 18.0 percent in February and 32.8 percent a year earlier. Foreclosure resales peaked at 58.8 percent in February 2009.

Chicago Fed Index Reach Loosest Level Since Feb. 2007 (Mark Perry)

The Chicago Fed National Financial Conditions Index, a measure of risk, liquidity and leverage in fixed income and equity markets, fell last week to the lowest level since February 2007. It means credit conditions continue to ease.

chicago fed index

The Inflation Hawks May Have Capitulated (Kit Juckes via FT Alphaville)

Rising real U.S. treasury yields are now matched by an equally sharp fall in breakeven inflation rates, Societe Generale's Kit Juckes notes (via FT Alphaville). This is not supposed to happen. Five-year breakeven inflation rose from a "distorted low" of -0.5% in October 2008 to almost 3% in 2011. Meanwhile, "real yields" from October 2008 to now have grown to -1.77%, compared with +3.2%. In this month alone inflation fell -0.6% to 1.95%.

"Whether this is a position-driven adjustment or capitulation by those who fear that current monetary policies must inevitably lead to an outbreak of inflation, it looks very like a series of dominoes falling over," he writes.

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