Week in Review: June 1

Well, I guess sell in May and go away was the best thing to do after all. Last week was another dreadful performance for the equity markets as weak US employment growth and more anxiety in Europe (Spain's banks) hammered stocks while driving interest rates to new all-time lows. Bonds rallied hard. The ten-year treasury now yields 1.45%, down 28 bp for the week.

US S&P stocks were down -3% on the week and off -6% for the month of May. The EAFE index of developed equity markets lost a whopping 11.5% in May and was off -2.7% last week. Commodities got clobbered. WTI oil was down $7 to end the week just above $83. Oil lost almost $20 per barrel in May.

The silver lining is that inflation is falling globally raising real incomes and giving monetary policymakers room to ease. Pressures are building for more initiatives here, in the Eurozone and in China to get economies moving.

Facebook (FB) has continued to slide, dropping to $27.72, down 28.2% from its IPO price of $38 a share. The stock price has fallen as more investors cite concerns about the company's growth prospects and moneymaking challenges.

US economic data last week was okay ex the Friday unemployment numbers. That was unambiguously weak with the unemployment rate up to 8.2% and payroll employment growing at a meager 69,000 new jobs, the fewest in a year. Revisions brought the prior two months job growth down -49,000. It looks like the warm winter "pulled jobs forward" in Q1 and we are at the tail end of that "payback period".

The economy grew a revised 1.9% in Q1 and most expect a 2% or higher print in Q2 - still pretty sluggish and unlikely to bring the unemployment rate down quickly.

Don't let your children see this! Enrico Moretti notes that Italian men tend to live with their parents until quite late in life: 83% of men 33 or younger still live at home. Even when they leave, young people commonly get an apartment in the same neighborhood as their parents, often the same building. The point is that many Europeans are not mobile for cultural reasons and hence the unemployment rate stays high. Americans are much more mobile and willing to go where the jobs are.

Next week is light on economic data with the ISM service sector composite out Tuesday and the Federal Reserve Beige book on Wednesday. Overseas, look for rate announcements from the ECB and BoE midweek. The Federal Reserve doesn't meet until June 19th and 20th. Possible easing is back on the table.