Are Weak Emerging Markets Linked to Fed Tapering?

The current selloff in Emerging Markets (EM) may be peripherally related to Federal Reserve (Fed) tapering, but any linkage is more psychological than mechanical. In general, Fed tapering is expected to result in a renormalizing of bond yields (i.e. the 10-year Treasury working its way back to 3.5% or a little higher this year), but the Fed is still easing – just a little less aggressively – and they are not tightening. Continue reading

Where Do Global Economies Stand in 2014?

Observations on the Capital Markets – Week Ended January 24, 2014

  • In the U.S.: Few surprises in economic data, though the debt ceiling looms
  • In Europe: Better economic data, but the credit crunch persists
  • In China: GDP growth is on track, but offshore investors watch PMI
  • In Japan: All eyes will be on wages – will they rise?
  • In Argentina:  devalued currency

Last week the IMF raised its 2014 global growth forecast from 3.6% to 3.7%. The U.S. growth forecast rose from 2.7% to 2.8%, Eurozone from 0.9% to 1.0% and China from 7.2% to 7.5%. Here’s a closer look at some of the developments influencing the global economies and markets:

In the U.S.: Few Surprises in Economic Data, though the Debt Ceiling Looms
The debt ceiling will take center stage in Washington, as Treasury Secretary Jack Lew said the government will run out of cash around the end of February if the debt limit (scheduled to be reached Feb 7) isn’t raised (and if tax refunds are sent out on time). The White House wants a “clean” increase; Republicans want something in return for an increase … neither side wants a default.

Continue reading

Everyone Seems to be Reaching the Same Conclusion About Global Growth: It’s Improving

Observations on the Capital Markets – Week Ended January 17, 2014

The OECD’s (Organization for Economic Cooperation and Development) leading indicators showed the global economy accelerating in November. The World Bank raised its 2014 global GDP growth forecast from 3.0% to 3.2% (versus 2.4% in 2013). It expects U.S. growth of 2.8% in 2014, up from 1.8% in 2013. The bank cut its emerging market growth forecast, though, saying sustainable growth rates have declined.

International Monetary Fund Managing Director Christine Lagarde also forecast accelerating global growth in 2014, led by the advanced economies, saying (no news flash here) that the worst-case scenario had been avoided but that risks remain.

Finally, the Fed’s Beige Book portrays a strengthening economy with few bottlenecks. Nine of the twelve Fed districts characterized economic growth as “moderate” in the latest Beige Book; for most, the outlook is for steady or accelerating growth. Manufacturing is leading, with eleven districts reported both growing sales and an optimistic outlook. Nine of the twelve districts noted rising retail activity; eight noted increased hiring. Most districts report seeing little upward pressure on wages and prices. Continue reading

FOMC Minutes: Little Market Reaction. Hidden Message?

Observations on the Capital Markets – Week Ended January 10, 2014:

  • Friday’s labor market report was disappointing – and a little noisy
  • Bond markets rallied on weak job growth
  • U.S. economic news: More positives than negatives
  • Eurozone news: Not good, but getting better
  • China news: Is slower export growth really a sign of global weakness?

The FOMC Minutes Drew Little Market Reaction, but Contained Hidden Message
Harry Truman once famously asked for a one-armed economist, one who couldn’t say “but on the other hand…” On this score, while there were no real surprises or new insights in its minutes, the FOMC is an octopus with an extra arm: the minutes paint the picture of a committee with a range of views on every question – the antithesis of consensus. If decisions are, as the Fed continually reminds us, data-driven, and if there’s no consensus on the committee, how much weight should you put on the Fed’s forward guidance? I suspect the message is: not too much.

Continue reading

The U.S. Begins an (Un)employment Experiment

Observations on the Capital Markets – Week Ended January 3, 2014

Extended unemployment benefits stopped for 1.3 million people at year-end. This doesn’t change their employment status . . . they just stop getting unemployment compensation. Extended benefits (of up to 99 weeks) was part of the recession-fighting fiscal stimulus package. A question was: did this create a dis-incentive to find a job (aka “funemployment”). Continue reading

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