Market Watch

After the storm, the “ship loses steam”

The Richmond Fed survey makes it now three “current month” regional Fed surveys collapsing … and the Conference Board confidence indicator out today was also poor. What should have been interesting information going into the latest FOMC meeting was that those 5- and 10-year break-even inflation rates were already falling fast BEFORE the meeting! The regional Fed surveys should count for something, or what’s their point? Elsewhere, many see the consumer stepping up their spending…The fact is that is that “after the storm, the economic ship has lost quite a bit of steam”!

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Bad Omens

From the WSJ: …With rates now rising, the Fed’s actions have begun shifting investors away from riskier corporate debt. Spreads between 10-year Treasuries and medium-grade corporate debt have hit their widest point in two years, though spreads remain considerably tighter than during periods of market stress seen in 2015 and early 2016. The “Confederate Flag” pattern appears to be reasserting itself! Could be indicating markets expect NGDP growth to keep sliding, i.e. monetary policy tightening (irrespective of interest moves by the Fed). Note: Monthly NGDP to October from Macroeconomic Advisers – 3-mo MA of YoY growth

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Is the economy headed for recession?

An Allegory The economy is like an old pickup truck, heavily laden with produce. At times, absurdly overloaded with baskets of apples and crates of cabbages. When the truck “hits a bump”, produce might fall off the truck if it is heavily laden and the bump is sufficiently jarring. In this allegory, baskets of produce represent jobs and loans. The bumps the truck hits represent unexpected, downward shocks to NGDP. If the nominal bump is hard enough, some loans will fail and jobs will be lost, think of a crate of cabbages (jobs) sliding from the top of the heap… Read More

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Not a quiet Summer. The USD may have begun a surge. The DXY index seems to have broken out decisively to the upside above 96.0. The great post-Trump devaluation looks to be going into reverse. That devaluation was very welcome and brought to an end the late Obama-era economic stagnation. Trump may have been celebrating the strength of the USD when taunting the President of Turkey in his tweet announcing higher steel and aluminium tariffs, but not too long ago he was arguing for USD weakness. So, is the USD rising due to USD strength or RoW currency weakness? Obviously… Read More

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Having been on a “trade war watch” for several weeks it seems as if markets really aren’t considering Trump’s grandstanding such a big deal. Tariffs will hurt both the US and its trading “foes”, for sure, but not cause huge damage to NGDP growth. Perhaps these new trade barriers will reduce real growth a bit but not by much. The war generates headlines and pages of copy but signifies little. Some patterns of demand will switch as will some production. Trump is powerless to stop Harley Davidson setting up a factory in China to serve China. He can’t stop the… Read More

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Week Ending Friday June 22, 2018 A super quiet week in equities and bonds, with just a modest rebound in the USD during the week and in oil prices at the back end. This is somewhat surprising given all the trade tensions, but US markets seem to be taking the threat or even the actuality of tariffs in their stride. Emerging markets and heavily trade-dependent European ones like Germany are much more affected, as you would expect. The positive trends, if not levels, in the US are still driving matters, offsetting trade tensions and political news. It is hard to… Read More

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Week Ending Friday June 15, 2018 Equities flat over the week, a touch weaker after the FOMC meeting but nothing dramatic. Trade war worries were around, especially during Friday but ended up having little impact. The USD was stronger during the week, especially on Thursday, a fascinating day. The USD rose 1.5% initially due to much more dovish than expected ECB meeting that while confirming the end of QE also made it clear it would still be trying to keep policy bias towards easing. Rates were promised not to rise until at least late 2019 despite fears of an imminent… Read More

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Modest optimism returns but growth may not

Week Ending Friday June 8, 2018 Markets recovered some of their poise last weeks. Bond yields fluctuated but ended the week not much different from where they started and equities rallied reaching levels last seen in April. The back-on-again talks with North Korea beat the G7 discord, while expectations for the trade war merely fluctuated. Growth seems to be disappearing in US a bit, elsewhere a lot While NGDP growth in the US has appeared to accelerate into 2018Q1 with a high of 4.7% YoY, the best since 2015Q1, it isn’t quite that good. There were two very strong quarters… Read More

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Week Ending Friday June 1, 2018 Market movements last week implied modestly lower NGDP growth in the coming year. Our market-driven forecast, which we use to cut through the noise and detect the meaning of aggregate market moves, fell from 4.0% to 3.9%, Thursday-to-Thursday. This small move lower reflected lower copper and oil prices, a stronger dollar, lower stocks, lower 5-year TIPS spreads and a more gently sloping yield curve. The 5-year yield fell from 2.82% to 2.68%, and the two-year from 2.5% to 2.4%, while shorted dated bonds were little changed. There were potentially important data releases last week,… Read More

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Oil Pulls Back Amid Heightened Inflation Concerns

The Week Ending Friday May 25th 2018 This last week was light on outlook-changing information even if it was rich in geopolitical news, with Trump’s North Korea peace summit in doubt, and Macron lauding Russia’s President Putin. Financial Media have focused more than usual on idiosyncrasies of individual firms, canned personal finance stories and geopolitical events this past week, as little of note has happened in markets. Our US NGDP forecast, which runs off recent NGDP growth trends and the signal from several financial markets, is consistent with this take. The forecast has been steady since April, hovering just north… Read More

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