A “Risk-On” Week, Despite Signs of Softness

517155393Sovereign yields and equity prices rose, reversing their moves of the prior week. Aside from developments in Greece (still no resolution and little clarity), it’s not clear why markets sold off, or why they rebounded, as economic news was generally disappointing. Continue reading

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Slippery Stretch Last Week: Blame it On the Weather?

518926113Several economic indicators, including retail, housing and industrial data, were soft last week, in part – possibly – due to the weather.

Slightly Soft Retail Sales: Probably don’t reflect a lack of consumer buying power as much as a preference to save and/or weather.

  • March retail sales rose 0.9% month over month (m/m) after a 0.5% fall in February. Excluding autos (which were strong) and gasoline (impacted by price changes), retail sales were +0.5% m/m after -0.3% in February.
  • UMichigan consumer sentiment ticked up to 95.9 from 93.0 two weeks ago and 91.2 a month ago (but still down from an 8-year high of 98.1 in January).
  • Initial unemployment claims ticked up to 294k; the 4-week average is 283k. No warning flares from the labor market.

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The Oracle Has Spoken: Fed Maintains a Dovish Tone

Federal Reserve BuildingThe minutes of the March 17-18 Federal Open Market Committee (FOMC) meeting were generally interpreted as dovish and showed continuing divisions within the Fed as to when hikes should start, and it still seems far from a consensus to act. The minutes also reinforced expectations that the path of rate hikes will be “fairly gradual.”

The New Fed “Oracle” Dovish as Well
When he was chairman of the Fed, Alan Greenspan earned the nickname “The Oracle.” Greenspan was a master at anticipating the flow, but operated behind a cloak of secrecy and obfuscation (my favorite quote: “I know you think you understand what you thought I said but I’m not sure you realize that what you heard is not what I meant”).
The thickness of his briefcase was the most that reporters and investors had to go on in forecasting rates. There were no press conferences, meeting minutes, or policy statements. Continue reading

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U.S. Economy: Soft Patch or Weakening?

516060469Over the past six months, the dollar has appreciated around 15 percent against a basket of currencies. If sustained, the International Monetary Fund (IMF) estimates that U.S. GDP growth and inflation would each be around 1% lower than otherwise.

In manufacturing, we saw mixed signals last week. The Markit manufacturing PMI (which has consistently been more upbeat than other indicators) rose to a 5-month high of 55.7, despite softening export orders. However, the ISM manufacturing PMI fell 1.4 to 51.5, lowest since May 2013. New export orders were below 50 (falling) for the third consecutive month. Continue reading

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European Equities: What a Quarter!

122401083European equities rallied impressively during Q1, delivering just short of 15% – a move driven by the announcement (finally!) that the European Central Bank would enact Quantitative Easing (QE).  This support, coupled with renewed signs of life in the European economy, paved the way for significant shift of assets into European equity markets. But after a return of this magnitude, the question investors are asking us in the European Equity team is; where can the asset class go from here? Continue reading

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