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

A Quiet Santa Claus Rally Leads Us into the New Year

Weekly Market Report
Observations on the Capital Markets – Week Ended December 27, 2013:

  • Signs of acceleration for the U.S. economy
  • Still mixed news on housing
  • Meanwhile, in the markets, Santa Claus came quietly to town
  • In China, the cash crunch eases

Signs of Acceleration for the U.S. Economy Last Week . . .
Last week’s economic news was generally strong, providing momentum for the economy as we step into 2014. The U.S. Q3 GDP growth rate was revised up to 4.1%, and the Chicago Fed National Activity Index (a weighted average of 85 monthly indicators of national economic activity) rose in November, signaling an accelerating economy.

  • New factory orders for durable goods rose in November – up 10.9% year over year (y/y).
  • Initial unemployment claims dropped to 338k.
  • Personal Income rose 0.2% month over month (m/m) in November (2.3% y/y).
  • November consumer spending hit the highest level in five months – up 3.5% y/y.
  • Still no inflation: the PCE (Personal Consumption Expenditures) Price index was up 0.9% y/y; core was up 1.1%.

Continue reading

Is This the ‘New Normal’?

Wardwell’s Weekly Market Report

Observations on the Capital Markets – Week Ended October 25, 2013

  • Markets settle into a new “normal”
  • Mixed data for labor, housing and the economy
  • Watching Europe, China and Japan
  • Next week: Wednesday’s Fed statement and lots more data

Markets Settle into a New “Normal”
All sorts of economic data were released last week, but volatility has dropped: rightly or wrongly, market forecasts about the pace of quantitative easing (QE) and earnings growth in the U.S. appear to have coalesced around an outlook for “slow growth with ongoing QE”.

  • Currencies: The dollar dropped about 1/2% against the euro and yen
  • Bonds: The 10-year Treasury yield fell 7 basis points (bps) to 2.53%; the 10-year TIP yield fell 8bps to 0.34%. Key indexes returned 0.5% with credit outperforming as the BoA Merrill Lynch High Yield Index fell 4bps to 442. Foreign sovereign markets were generally quiet.
  • Equities: The S&P 500 was up almost 1% for the week, led by Industrials, Utilities, and Consumer Discretionary. Financials and Energy lagged. The MSCI Europe was up about the same, but MSCI Emerging Markets was down 1% and MSCI Japan fell more than 2%.
  • Commodities: Gold was up 2%; WTI oil was down 1%.

Continue reading

2nd Quarter U.S. GDP — OK not Great. New Reporting on What’s Counted Questionable

Wardwell Market Report 7/31/13

Second quarter 2013 U.S. Gross Domestic Product (GDP) growth came in at 1.7% (flash estimate) better than the 1%-ish growth some feared . . . but first quarter growth was revised down from 1.8% to 1.1%, so first-half growth is not surprising on the upside, despite the decent second quarter report.

  • Personal consumption expenditure growth was weaker than typical, holding growth down.
  • Nonresidential investment, residential investment, and business inventories were fine.
  • The trade deficit (a small increase) and government (essentially flat after two quarters of being a drag) were small numbers. Continue reading

How Does the Fed’s Recent Action Compare to EM Central Banks?

In an interview on Bloomberg Radio with Tom Keene and Ken Prewitt, I shared my thoughts on the Fed’s recent announcement that it would continue its QE efforts for the time being. If you missed the segment, I’ve summarized that conversation here for you. (Note that this is not an official transcript of our conversation).

Continue reading

Is Volatility Dead? Hardly.

Co-Written by Paresh Upadhyaya and Michael Temple

Certain pundits suggest we have entered a new volatility regime – that volatility has been tamed by the massive amount of liquidity injected into worldwide capital markets by very accommodative central banks. We take a different view. While volatility has been declining across many asset classes, it is creeping into several that may have escaped some investors’ attention. Continue reading

Why U.S. Interest Rates Will Rise

Central banks have taken numerous measures to inject liquidity into their domestic economies. This has helped boost risk appetite and investor sentiment.

  • The European Central Bank’s stabilization programs have successfully reduced financial market and sovereign tail risk for banks.
  • Global growth troughed in Q2 2012, but has been on an upward trend since.
  • Market concerns over the U.S. debt situation are easing as the U.S. economy proved surprisingly resilient to many uncertainties.

As a result, investors are concerned that bond yields, which move inversely to prices, have bottomed for the U.S. 10-year Treasury and will surge, raising fears of a bond bear market along the lines of the Great Bond Bear Market of 1994. Continue reading

U.S. GDP: After Some First-Quarter Flurry, a Slowdown?

We had a little flush of activity in the first quarter, which we believe will lead to much better GDP – potentially well over 3% – than people anticipated in the beginning of the year. We look at this activity as a little bit of a catch-up, for a couple of reasons: Continue reading


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