Equity volatility subsided, interest-rate volatility shot up

Confidence in equities is returning, but investors fret of inflation

SMARTINMONEY. Equity volatility index (VIX) has slowly subsided and is now down to pre-Lehman levels, a sign that investor confidence is returning.



But as volatility has subsided in equities, it has popped up in debts. The implied volatility of interest-rate swap options has shot up in recent months, indicating that investors are uncertain about long-term interest rates. Ten-year Treasury bond yields have swung between just over 2% and almost 4% since December. Although many countries are experiencing mild deflation, investors fret and rush to protect themselves. Read full article ...

Another disappointing month for U.S. job market

The U.S. unemployment rate rose for the ninth straight month, climbing to 9.5% from 9.4%, and hitting another 26-year high in June.

The battered labor market took a step backwards last month as employers trimmed more jobs from their payrolls in June. There was a net loss of 467,000 jobs in June, compared with a revised loss of 322,000 jobs in May. This was the first time in four months that the number of jobs lost rose from the prior month.

Nearly 3.4 million jobs have been lost during the first half of 2009, more than the 3.1 million lost in all of 2008.

Brighter data on American house prices

Many think that the worst is over even though house prices in America were still roughly 18% lower than a year earlier. The latest Case-Shiller indices, released on June 30th, showed that prices continued to fall in April. The ten-city index was 0.7% lower than a month earlier, and the 20-city index went down by 0.6%. But these falls were the smallest since June 2008.

The number of foreclosures in process rose by 22% in the first quarter of this year, and that the number of prime mortgages with payments at least 60 days late went up by 20%.

The government is stepping up its efforts to get people to take part in its anti-foreclosure program. Many look to housing to lead a broader economic recovery; they also believe that house prices indirectly affect consumer spending, both by allowing people to borrow against the value of their homes.

Economy fell at a little lower rate in 1 Qtr

The revised reading on gross domestic product (GDP) showed the economy from January through March didn't fall as deeply as the 5.7 percent annualized decline reported a month ago. Instead, the economy tumbled at a 5.5 percent pace in the first quarter.

Real GDP, the measure of the value of goods and services produced in the economy, fell at a 6.3 percent pace in the fourth quarter of 2008.

The GDP revisions were largely trivial and don't alter the big picture of an economic calamity in the six months following the collapse of Lehman Bros. The main changes were higher inventories and lower imports than previously estimated. Consumer spending, business investment, residential investments, and exports were revised lower.

During the quarter business investment declined at a record rate. Investments in housing fell at the fastest pace in 29 years. Domestic demand fell at the fastest rate in 29 years. Exports fell at the fastest pace in 40 years, while imports fell at the fastest pace in 62 years.

The business sector was the major story for the first quarter. Firms stopped new investments, and shed workers and inventories at a dizzying pace to bring down production and stockpiles to match the lower demand from U.S. and foreign markets.

The economy appears to be doing better now, even though heavy layoffs persist. Many analysts believe the economy isn't sinking nearly as much now as the recession eases it grip on the country. For the current April-June quarter, economists predict GDP is sinking at a pace of between 1 and 3 percent.

Many economists predict the economy will start growing again as soon as the third quarter, although the unemployment will keep rising. The nation's unemployment rate hit a quarter-century peak of 9.4 percent last month and is likely to reach 10 percent by the year-end.

U.S. unemployment rate at 26 year high

While the deterioration pace of payroll loss showed at some improvement in the economy, the U.S. unemployment rate jumped to a 26-year high of 9.4% in May from 8.9% in April. The unemployment rate was the highest level since February 1983.

Employers cut 345,000 jobs from their payrolls in the month, down from the revised decline of 504,000 jobs in April. This was the fewest jobs lost in a month since last September.

Payrolls had lost an average of 643,000 in the previous six months. The economy has lost 6 million jobs since the recession began in December 2007.