Weekly Assessments

The Week Ending Friday February 16th 2018 Bill Dudley called well the February wobble the week before last – small potatoes. The stock market recovery was underpinned by more “even better than expected” company results. The initial run of “even better than expected” company results had let to a severe overshoot in the S&P500 – until a supposedly good January wage growth figure spooked markets into thinking the Fed may tighten even faster. In addition, the quite generous fiscal spending deal and prospects for an even more generous longer-term spending plan, allied to the already agreed tax cuts, are worrying…...

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Small potatoes

The Week Ending Friday February 9th 2018 Wild, but not so wild. The 5% sell off in equities over the week added to the 3% fall the week before has certainly blown the froth off the stock market. Much better than expected sales and earnings figures had led to an excessively positive reaction in stocks (firstchart) – that has now been partly reversed. The long term forward Price/Earnings ratio (second chart) now looks more normal. And perhaps that is all there is. The news about the spending deal, about wage growth, about rates is all just noise. Stocks had gotten…...

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Pay growth fears strong but unfounded

The Week Ending Friday February 2nd 2018 A terrible Friday for equities and bond prices topped off a poor week overall. Some cooling off for equities from the super start to 2018 was probably inevitable. On top of a natural tendency to pause, some spurious hourly wage growth data on Friday seriously spooked markets. The All Private Employees Average Hourly Earnings growth hit 2.9% YoY for the first time since the recession. However, this 12-year old data series includes a lot of higher paid managers and professionals, who are definitely not hourly paid employees. Thus, the hourly earnings figure cannot…...

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The Week Ending Friday January 26 2018 This was quite a week. The S&P 500 rose 2.4%, Friday-to-Friday, the dollar index was down -1.7% and the GDP report was about as strong as expected, at least on the nominal figures we are focused on. Hard as it is to believe, WTI crude oil is selling for $66 a barrel, no doubt in part a result of the 9% drop in US crude stockpiles from this time last year. While we’re at it, let’s note the 5-year yield is at 2.47%, the highest level since 2011, though hardly back to a…...

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Week ending Friday January 19 2018 Yields rising across the curve is undoubtedly a good sign.  The chances of a March rate rise have consistently risen, as well as further hikes in June and a final one in the fourth quarter some time. The two year yield curve has also risen above 2% but does not yet indicate any rate rises in 2019. This rising short term rate environment has for the first time in a long while been matched by longer term yields. The 10 year yield is now above 2.5% for the first time since before the 2014…...

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Week ending Friday January 12 2018 The damned stock market just won’t stop rising. The yield curve is getting steeper too, and shifting higher, at least that was what happened this week. Markets continue to move in directions that imply an enduring increase in nominal growth. 5-year Inflation indexed bond spreads imply about 1.9% average yearly inflation over the next five years, about the same as the week before, but up from about 1.7% in early December. The dollar continues to plunge, with the “DXY” spot dollar index down 1.7% just this week. It’s not that the dollar is at…...

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Week ending Friday January 5th 2018 There was no break in trends a far as markets were concerned. Equities hit new highs, bond yields rose gently across the curve and the USD weakened. These are all good signs for better nominal GDP growth ahead.  Our NGDP growth forecast for 2018Q4 jumped to 4.3% in the week after Christmas and would probably be higher now. We won’t see that as we always focus on four quarters ahead so the next NGDP Forecast release will be for 2019Q1. We (and markets and nowcasts) expect 2017Q4 to have been another quarter of decent…...

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Week ending Friday December 29th 2017 Equity markets ended the year at highs – helped by a two-week run of weakness in the USD. The broad USD index is now back below its two year lows, hinting at easier monetary policy ahead. Contra any such conclusion we have seen bond markets also had a good year, a surprising result given healthy equities but less given such weak inflation readings. Worldwide RGDP appears to be the healthiest in years even if not yet making up to trend levels. No major currency bloc seem to be lagging, except perhaps the UK. Our…...

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Will the Fed ‘Scrooge’ things?

Week ending Friday December 22nd 2017 This week we had some additional light shed on the current big question for market watchers: “what will Q4 NGDP growth be?” This is a weighty question because the foremost statistical driver of future NGDP growth is recent NGDP growth, one, two, three quarters back. The cumulative, quarter-on-quarter growth (think of a 4-quarter moving average of quarterly growth) has tended to foretell growth in coming quarters, so getting a strong Q4 after strong Q3 and acceptable Q2 would bode well for 2018, while a weak read would dash our hopes of an enduring “Trump…...

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Week ending Friday December 15th 2017 An apparently stupid question in our header this week. But the answer will be surprising to many. The Fed raised its target rate 25bps on Wednesday but rates, rates in the sense of those that matter, market rates, fell slightly. Bond yields across all maturities above 12m fell on the announcement.  The Fed action actually made “rates” fall. Asimilar phenomenon was seen in November in the UK on the most recent Bank of England rate “rise”. The bond market was saying that the Fed has moved too far too fast, saying it doesn’t believe…...

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