1. It was another volatile week for stocks as global economic data continued to show signs of persistent weakness and a spate of poor earnings data were released in the United States.

2. The number of Americans filing initial claims for state unemployment benefits dropped last week, falling by 6,000 claims to a new seasonally adjusted level of 247,000 claims. The drop pushed U.S. unemployment claims to levels not seen since November of 1973, 42 and a half years ago. Despite another week’s worth of improving labor conditions, it remains unlikely that the Federal Reserve will move to raise interest rates at its next Federal Open Market Committee meeting, which begins next Tuesday, due to signs of continued economic weakness both in the U.S. and globally.

3. In a minimally reported story, Saudi Arabia apparently informed the White House last month that it could sell off up to $750 billion in U.S. assets if Congress goes forward with legislation that would apparently allow Saudi, in addition to other sovereign government, officials to be prosecuted in terrorism cases in American courts. The bill, which is largely focused on holding sovereign governments responsible for any potential involvement in the September 11 terror attacks in the U.S., will likely be vetoed by President Obama if it makes it to his desk, but the threat by Saudi Arabia to sell off assets if Congress passes the bill may be indicating further deterioration in the strained diplomatic relations between Saudi Arabia and the U.S.

4. Hedge funds have suffered their worst quarter since 2009 as more than $15 billion was pulled out by investors who appear to be fed up with high fee structures and poor performance. Sovereign wealth funds have also been hemorrhaging cash, on a global basis, especially as heavily oil-dependent sovereign nations struggle to find ways to prop up their faltering economies.

5. The Bank of Japan (BoJ) appears more and more likely to be seriously considering additional stimulus measures to attempt to combat a rising Japanese yen. Exports were down for the sixth straight month in March and in the wake of devastating earthquakes which struck southern Japan last week, the BoJ is rumored to be considering ramping up its monetary stimulus. Prime Minister Shinzo Abe is also apparently ready to introduce a fiscal stimulus plan that would see 10 trillion yen ($91 billion U.S.) in extra spending and he will also likely introduce some disaster relief funds to aid in rebuilding and recovering from last week’s quakes. The economic impact resulting from the earthquakes could also force Abe to delay a planned sales tax hike that is scheduled for next year. Reuters, citing “a senior government official with direct knowledge of policymaking”, reported that official as saying: “If output weakens and consumer sentiment cools as a result of the quakes, the conditions justifying additional monetary easing would all fall into place.”

6. Billionaire financier George Soros is warning that China is looking more and more similar to the U.S. just prior to the 2008 crash that started the worldwide financial crisis. Mr. Soros said “[China is] similarly fueled by credit growth and eventually unsustainable extension of credit. But it feeds on itself, and it has a lot to do with real estate. Of course since it feeds on itself, it can reach the turning point later than anybody expects. This happened in America where, you know, 2005/2006 a lot of people like [former Fed chair] Paul Volcker saw it coming, but it went on to 2007/2008.” Mr. Soros continued, speaking at a roundtable for the Asia Society, saying “[China] re-lit the furnaces. They also induced a construction boom and real estate boom. It is a bubble but it can grow and it can feed on itself. And markets are not infallible and they buy into it and of course that is another factor that makes it grow. [Monetary stimulus] can buy you additional time, but it makes the problem that much bigger. That’s where we are.” An economic collapse in China on the order of the U.S. housing collapse that triggered the 2008 financial crisis would likely be devastating, on a global basis.
7. The European Central Bank (ECB) opted to keep interest rates and stimulus measures on hold at its latest meeting which concluded on Thursday. Though there were no surprise announcements of additional stimulus measures as we saw in March, the ECB did unveil further details of a new corporate bond-buying plan as part of its quantitative easing program which would be implemented in June. One clause in the new corporate bond plan is apparently making U.S. economists and analysts alike a bit nervous. The bond purchases carried out under the new plan could include “debt instruments issued by corporations incorporated in the euro area whose ultimate parent is not based in the euro area.” According to a statement released after the usual press conference following the ECB meeting, the purchases will be carried out, on behalf of the ECB, by the banks of Belgium, Germany, Spain, France, Italy and Finland. The plan would basically allow the ECB to purchase corporate bonds of U.S. based companies which, in effect, could amount to a “back door” way to export quantitative easing into the United States despite the Federal Reserve’s desire to stay on course with rate hikes.

8. Crude oil seemed to ignore fundamentals this week, rising above $45 a barrel despite continued concerns of a prolonged state of oversupply. Last week’s meeting in Doha, Qatar that was supposed to have resulted in an “output freeze” on crude oil production collapsed with no possibility of such a deal. Saudi Arabia said it would not sign any deal to freeze output levels unless Iran participated and Iran did not even send a representative to the meeting. After the deal collapsed, Saudi Arabia said it could potentially increase oil output instead of freezing output, to which Russia responded that it was prepared to push its own oil production to historic levels if need be. Iran, for its part, has also said it was determined to raise production levels in an attempt to regain lost market share, now that sanctions have been lifted.

9. The euro drifted higher against the U.S. dollar through Wednesday, when it plunged back near starting levels for the week. Late on Thursday the euro saw a sudden and unexpected spike back to its high for the weak, but the rise was short lived and almost immediately reversed itself. By Friday the euro had turned negative against the U.S. dollar and will close the week lower. The Japanese yen started the week moving higher against the U.S. dollar, but soon began drifting slightly lower through most of the week. On Friday, amid rumors that the Bank of Japan might be considering more stimulus to combat a stronger yen, the yen plunged rapidly lower against the U.S. dollar and will close the week there.

– Trading Department, Precious Metals International, Ltd.