Insight & Commentaries
Year Six and Counting This Friday will bring another employment situation report, and expectations are for another addition of 248,000 jobs with the unemployment rate expected to hold steady near 5.5%. To put the progress in perspective, we thought we would use this week’s News You Can Use to lay on the table a simple overview of the economic progress made to date. We are now six years beyond the deepest recession since the Great Depression, and we are beyond the recovery phase and into the expansion phase. Although we’ve seen some slippage in the data of late, the broader…
The dollar halted its relentless rise of the past few months last week as the Federal Open Market Committee (FOMC) offered a set of macro forecasts that were much weaker than the markets expected. Forecasts were cut across the board for growth and inflation for both 2015 and 2016. The longer run expectation for inflation remained at 2%, while the longer run expectation for unemployment was reduced to 5-5.2%. At the same time, the FOMC (as expected) removed their “patient” language in describing their posture with regard to the timing of an initial rate increase. The combination of the lowered…
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It is easy to lose sight of the fact that two of the world’s three largest economies — namely Europe and China — are significantly out of step with our own economy. Consider that the unemployment rate in the Eurozone is still above 11% and deflation is a reality (consumer prices are down 0.3% year-over-year). China just reported another month of plunging imports (down 20% on a year-over-year basis for a second month in a row). Europe is readying a program of 60 billion Euros in monthly asset purchases to address stagnating growth and a falling price level. The program…
Last week’s Chicago Purchasing Manager’s Survey Index (PMI) indicated significant weakness in manufacturing during the month of February. The index plunged from near 60 in January to 45.8 in February. The 14-point fall brought the index to below 50, a level that is generally associated with recession. Investors focus on the Chicago PMI because it is the first in a series of indicators that describe the health of the cyclical manufacturing sector. Today, we will get a look at the much broader Institute for Supply Management’s (ISM) Manufacturing Survey Index. Purchasing managers’ reports are interesting because they are on the…
After a six-month-long period of generally weakening global data, we are watching for signs that those trends are about to turn. Although our fundamental conditions barometer has yet to turn, very recent indications seem to be hinting at the possibility of a pickup in growth. Macro View Having an unbiased method for tracking changes in fundamental conditions helps keep us on our toes and responsive to changes in conditions that have the ability to impact returns. Although equity indices are near highs, a broader look at the data led us to reduce expectations through the back half of 2014 and into the first part…
Macro View A meeting between Euro-area finance ministers, central bankers, and European Commission officials ended abruptly Monday, as a Greek government official said the Euro area’s recommendation to extend bailout conditions was unacceptable. Greece’s current aid package expires February 28, thus necessitating a new round of negotiations between Greece and its creditors. The newly-elected Greek government is seeking a new deal with easier terms. The cost of Greek debt and the cost for bondholders to insure against a Greek default has risen dramatically in recent months, suggesting real concern about the potential for some form of default. Monday’s failed negotiation…
Payroll data suggests the U.S. is still the best alternative for global growth, but global conditions remain weak, and Europe and China continue to face significant challenges. Meanwhile, domestic earnings continue to grow, as first quarter S&P 500 earnings per share (EPS) growth tracks toward 6% excluding energy (3% growth if energy is included). Analysts expect 3.4% growth in S&P 500 operating earnings this year, according to the most recent survey from FactSet. Macro View Last week’s payroll number for January, along with upward revisions to prior months, was far better than expected and strengthens the bull case for the…
Thursday’s European Central Bank (ECB) announcement on monetary policy should attract considerable investor attention, given mounting deflation concern and faltering growth across much of Europe. Macro View The flow of data relating to economic and market fundamentals has become increasingly mixed as global inflation slips, demand from emerging markets weakens further, and investors express higher risk aversion. The widening of credit spreads, flattening of the yield curve, and an increase in volatility, as measured by the VIX, are all clear manifestations of heightened risk aversion. These impulses, coupled with continued signs of weakness in global growth, have led to declines…
Energy price declines should provide a benefit to global growth and lower inflation. Real growth could be materially boosted by lowered energy and gas prices by as much as $100 billion in the United States alone, as the lower price acts as a positive shock to consumption. On the flip side, we recognize that the impulse for lower prices emanated from weaker demand from emerging markets. Should the Federal Reserve (Fed) proceed with a midyear rate hike, one less prop for commodity prices will be removed. It is hard to interpret exactly how much of this is already priced in…
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