Are Low Job Claims an Omen for Faster Job Growth?

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?

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Mind the Gap

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. Continue reading

Summer Ends Quietly…with a Market-Moving Speech

Last week in the capital markets: A Quiet Last Week of August.  Economic news again suggested the U.S. economy is fine, while Asia and Europe are facing headwinds.  Mario Draghi’s dovish-sounding speech at Jackson Hole a week ago was probably more market-moving than anything that happened last week. Continue reading

“Whatever it Takes” Two Years Later: What’s New?

Today is the second anniversary of Mario Draghi’s “Whatever it takes” pronouncement during the darkest days for the euro. Let me share with you some thoughts on how that event probably changed the course of the Eurozone.

Draghi’s speech did what it was supposed to do – it preserved the euro and it calmed the economy and the financial markets – without costing a single euro. The most important measure of success is that after the speech, the Outright Monetary Transaction Program (OMT), which allowed the European Central Bank (ECB) to buy short-term bonds from euro governments, was not utilized even once. The bottom line: The speech and the program were nothing more than a communications initiative, albeit an extremely adept one.

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Why Did Treasury Bonds Rally So Much?

U.S. Treasuries rallied last week, pushing yields to new 2014 lows – but why did it happen?  War fears seem an unlikely explanation: gold and oil were well-behaved, and equities were flattish.U.S. economic fears couldn’t explain it – the data wasn’t bad – but low Eurozone GDP growth might have contributed. The trading desk buzz is that we’re seeing a short squeeze – there just aren’t enough bonds to go around. Continue reading

A Eurozone Pick-Up? Three Key Insights

The Eurozone economy is showing more convincing signs of a pick-up that is more broad based and robust than anticipated. Obviously, a wide difference in conditions exists between European countries and fragmentation in their financial conditions still exist, but these are (slowly) receding. We recently examined trends in three elements of Eurozone health: growth, inflation and the European Central Bank.

Growth: Improving Momentum
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What Type of Approach Might Best Pursue Investor Needs and Challenges?

In the last five years, we have seen an increasing appetite for risky assets. Initially, this was a consequence of the search for yield and enhanced returns in a low interest rate environment. More recently, it has translated into a deeper exploration of yield opportunities on the riskier side of risky assets (such as high-yield bonds and small-cap stocks). Now, with equity markets close to all-time highs and credit spreads at historical lows, we must ask ourselves two questions: Continue reading

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