The Economy and Bond Market Cheat Sheet (October 17, 2011)
The yield on the 10-year U.S Treasury note increased by 17 basis points to end the week at 2.25 percent.
Strengths
- Retail sales rose 1.1 percent in September, the largest gain in seven months and above the 0.7 percent consensus.
- The U.S Department of Agriculture announced Thursday that China had purchased 900,000 metric tons of corn. It was one of China’s biggest-ever purchases of corn on overseas markets.
- The NFIB Index of Small Business Optimism increased to 88.9 in September, the first gain in seven months, from Augusts’ 88.1 which was the weakest since July 2010. The index averaged 100.7 in the six-year expansion that ended in December 2007.
Weaknesses
- This week the International Energy Agency, the Organization of Petroleum Exporting Countries, and the U.S Energy Information Administration all lowered forecasts for oil demand in 2012, assuming a slowdown in global economic growth.
- New unemployment claims remain high. New claims fell by 1,000 last week to 404,000, slightly below the 405,000 consensus, but claims at this level still suggest weak hiring.
- Economists polled by Reuters expect the rate of growth in the world economy to slow to 3.6 percent in 2012 from 3.8 percent this year.
Opportunities
- With the economy weak and concerns brewing about an additional financial crisis, the Fed will remain accommodative for some time and bonds appear well supported in the current environment.
- Globally central banks have become attune to the risks of a global slowdown and will likely act to bolster economic growth.
Threats
- The threat of a more significant global economic slowdown than many expected just a couple of months ago has increased sharply.
- The threat of another global financial crisis cannot be ruled out.
