The Economy and Bond Market Cheat Sheet (May 23, 2011)
U.S. Treasury yields changed little for the week, generally falling slightly even with weak economic news.
April housing starts were released this week and came in well below expectations. As can be seen in the chart below, housing starts have been roughly unchanged for more than two years. Housing data has been very weak, from housing starts and building permits, to new and existing home sales, and prices continue to fall in many parts of the country. Housing remains mired in a slump and for the near future it appears unlikely to boost the economy.
Strengths
- Mortgage rates fell to the lowest level of 2011, hitting 4.61 percent.
- Initial jobless claims fell 25,000 in the week ended May 13 to 409,000 and appear to have broken the recent trend of higher claims.
- California tax revenue is now expected to be $6.6 billion higher than previous estimates through June 2012.
Weaknesses
- Manufacturing data, including U.S. industrial production and two Fed manufacturing indices, flashed several warning signs this week, potentially signaling a global industrial slowdown,.
- Japanâs economy shrank 3.7 percent in the first quarter.
- U.K. inflation rose 4.5 percent in April on a year-over-year basis while eurozone inflation rose 0.6 percent on a month-over-month basis.
Opportunities
- In an interesting twist, higher oil prices may actually act as a deflationary force if they materially slow the global economic growth.
Threats
- Greek default risks continue to rise as the idea of a âsoft restructuringâ of Greek debt was floated this week.
