The Economy and Bond Market
Treasury yields rallied again this week as concerns over Chinese attempts to slow their economy may threaten the global economic recovery. It was reported that China’s government ordered banks to slow down their lending to prevent overheating the economy. The Chinese government has enacted several measures in recent weeks aimed at slowing their economy which expanded 10.7 percent on a year over year basis in the fourth quarter.
Economic data was mixed this week and other macro issues were more significant in driving the market. The Index of Leading Indicators (LEI) rose more than expected, rising 1.1 percent in December. The chart below plots the LEI index and GDP on a year over year basis since 1980. If economic activity follows historical patterns, GDP is due for a significant recovery as we move through 2010.
Strengths
- The Index of Leading Indicators (LEI) rose more than expected, rising 1.1 percent in December.
- China’s GDP rose a very robust 10.7 percent in the fourth quarter.
- 30 year mortgage rates dropped below 5 percent for the first time in four weeks.
Weaknesses
- The Chinese government has enacted several measures in recent weeks aimed at slowing their economy.
- Housing in general appears to be bouncing along a bottom but unable to make sustained improvement.
- The producer price index rose 0.2 percent in December and on a year over year basis has jumped 4.4 percent driven largely by rising energy prices.
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
- Coordinated global removal of fiscal and monetary stimulus is the biggest threat to the financial markets.
The Economy and Bond Market
Treasury yields rallied again this week as concerns over Chinese attempts to slow their economy may threaten the global economic recovery. It was reported that China’s government ordered banks to slow down their lending to prevent overheating the economy. The Chinese government has enacted several measures in recent weeks aimed at slowing their economy which expanded 10.7 percent on a year over year basis in the fourth quarter.
Economic data was mixed this week and other macro issues were more significant in driving the market. The Index of Leading Indicators (LEI) rose more than expected, rising 1.1 percent in December. The chart below plots the LEI index and GDP on a year over year basis since 1980. If economic activity follows historical patterns, GDP is due for a significant recovery as we move through 2010.
Strengths
- The Index of Leading Indicators (LEI) rose more than expected, rising 1.1 percent in December.
- China’s GDP rose a very robust 10.7 percent in the fourth quarter.
- 30 year mortgage rates dropped below 5 percent for the first time in four weeks.
Weaknesses
- The Chinese government has enacted several measures in recent weeks aimed at slowing their economy.
- Housing in general appears to be bouncing along a bottom but unable to make sustained improvement.
- The producer price index rose 0.2 percent in December and on a year over year basis has jumped 4.4 percent driven largely by rising energy prices.
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
- Coordinated global removal of fiscal and monetary stimulus is the biggest threat to the financial markets.
