The Economy and Bond Market (4/5/2010)
Treasury bond yields were essentially unchanged this week on mixed economic data.
On Thursday, the ISM Manufacturing PMI Index reported very strong results for March, hitting the highest levels since 2004. This continued strength in manufacturing implies continued broad-based economic expansion. Most major global financial markets will be closed Friday in observance of the Good Friday religious holiday, but it is not a federal holiday. The March unemployment figures will be released Friday morning and could impact markets next week.
Strengths
- The ISM Manufacturing Index hit the highest levels in almost six years and implies robust growth.
- March consumer confidence rebounded from a weak February reading, likely driven by better economic and employment prospects.
- Japanese retail jumped 4.2 percent in February, driven by government incentives for cars and electronics. Japan continues to stimulate its economy in an attempt to kick-start growth.
Weaknesses
- Eurozone inflation rose to 1.5 percent in March, the highest level since 2008. The European Central Bank targets inflation below 2 percent.
- U.S. construction spending disappointed in February, falling 1.3 percent, and January’s data was also revised lower.
- A price index included in the ISM’s manufacturing report hit the highest level since the summer of 2008. It is another indicator pointing toward inflation.
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Opportunities
- If financial markets are a good mechanism for discounting the future, the future appears relatively robust. The markets have been able to shake off bad news relatively easily recently, which is probably a good sign for the economic recovery.
Threats
When governments around the world begin to wind-down the monetary and fiscal stimulus programs put in place during the economic crisis, it will likely present a headwind for the economy.
