Treasuries yields were little changed this week as the Federal Reserve more or less reiterated its stance on monetary policy. Inflation data for November was released this week and, as can be seen in the chart below, it has turned the corner and is back in positive territory on a year-over- year basis. Deflation concerns are likely to subside over the next few months as all measures of inflation have turned noticeably higher.
Strengths
- Industrial production in November rose 0.8 percent, faster than expected.
- Leading economic indicators rose 0.9 percent in November and have now risen eight straight months.
- Housing starts bounced back nearly 9 percent in November, after falling 10 percent in October.
Weaknesses
- Both the Consumer Price Index (CPI) and the Producer Price Index (PPI) were reported this week and are now solidly back in positive territory. Combined with last week’s import prices report, which also showed a sharp year-over-year increase, the case can be made that inflation has returned to a normal level and monetary policy may need to be adjusted sooner rather than later.
- Initial jobless claims have climbed higher in the past two weeks after making significant improvement in November.
- Abu Dhabi came to the rescue of debt-plagued Dubai this week, but concerns surrounding Greek and other European debt remain.
Opportunity
- Expectations continue to build for growth in the U.S. in the current quarter, possibly as much as 4 to 5 percent. The global economic recovery appears to be taking hold.
Threat
- The Fed reiterated its monetary policy stance this week. On the surface nothing really changed, but it is incrementally moving to reduce the policy accommodation and often these things move quicker than many expect.
