Last week in the capital markets was a “risk-off” week. We saw more signs that manufacturing is driving moderate economic growth. There was also some good news for the “residential investment” component of gross domestic product (GDP). It’s shaping up to be another year of the square root recovery…but still with core strength.
Claims Remain Low … An Omen of Faster Job Growth?
- Initial jobless claims (293k) rose week over week (w/w) but stayed below the four-week average of 300k.
- It’s remarkable how few employees are losing their jobs. In conjunction with the recent rise in the number of job openings, it suggests that maybe employers are finding themselves understaffed?
Posted in Economy, Industry Insights, Markets
Tagged Capital Markets, economy, employment, equity markets, Europe, European markets, Eurozone, markets, Ukraine, Unemployment, US GDP
The Federal Reserve Board’s policy-making committee convened on September 16-17 to discuss winding down its stimulus program. Janet Yellen, the Fed’s chairwoman, explained the results of the meeting in a news conference on September 17.
Is the Fed Being Too Accomodative?
If you look at the indicators the Fed has used in the past – the Taylor Rule for one, but there are others – they suggest the Fed is too easy and too accommodative. In fact, Ms. Yellen in her press conference acknowledged that the Fed is pursuing an easier policy than the common indicators would suggest. That doesn’t change anything they’ve done, but nonetheless, the declining unemployment rate, for example, and the increased pace of growth, are beginning to suggest rates are too low.
The Fed’s statement from its meeting last week contained few surprises but was slightly hawkish on a close reading. “Don’t fight the Fed” has been good advice in the past. Maybe it’s different this time. Maybe not. The year-end 2015 and 2016 “dot plot” forecasts for rates rose roughly 0.25% amidst slightly lower growth and inflation forecasts. Moderate economic growth continues, but homebuilding is not looking like a big GDP growth driver in 2014, yet inflation remains low, and there is little pressure on the Fed to hurry. Its balance sheet won’t shrink anytime soon, however. Continue reading
Economic fundamentals (the “real economy”) have been struggling to catch up with the buoyant behavior of financial markets and, eventually, these diverging patterns (gaps) will have to be reconciled. On the economic side, the main global structural imbalances (a mountain of debt, a lack of aggregate demand) remain very much in place and the multiple transitions that all the major economic areas are facing are far from being completed. The recent market dynamics would be inconceivable in a “normal” market cycle, but nothing is impossible in the fantastic world of Quantitative Easing (QE) and money printing. Central banks will continue to play a key role in financial markets. However, we believe that their actions will likely be less effective than in the past as they have almost exhausted the firepower of their unconventional policies. Continue reading
Posted in Economy, Equity
Tagged Abenomics, Central Banks, China, debt, deflation, ECB, economy, emerging markets, equity markets, Europe, European markets, Eurozone, India, inflation, markets, QE, QE Tapering, Slow growth
Last week in the capital markets: Bonds sold off globally in the week before the Fed meeting.
It was a quiet week for economic news, and the geopolitical front was relatively quiet (less fighting but more sanctions in Europe, moving toward a bigger effort against ISIS) but fears that the Fed is behind the curve seemed to be the ones that led investors and traders to act last week. Continue reading
Posted in Economy, Equity, Fixed Income, Markets
Tagged Bonds, Capital Markets, currencies, ECB, economy, emerging markets, Fed Action, inflation, Interest rates, US GDP