The Economy and Bond Market Radar (March 26, 2012)

The Economy and Bond Market Radar (March 26, 2012)

Treasury yields reversed course this week and headed lower as concerns surrounding a slowdown in China intensified. A combination of weaker factory data out of China and talk of slower steel and iron ore demand from China by global mining giant BHP Billiton was a catalyst for investors to rethink last week’s move in treasury yields.

Strengths

• Initial jobless claims continue to improve, hitting the lowest level since March 2008.
• Inflation data in China, Brazil and the U.K. all indicated a slowing trend this week.
• The Conference Board’s Leading Indicator Index continues to grind higher for the fifth month in a row.

Weaknesses

• The HSBC Flash China Manufacturing Purchasing Managers’ Index (PMI) fell to 48.1, confirming other recent weak data and comments by government officials.
• Signs of weakness in the auto area are starting to build as gasoline demand fell 7 percent and some indicators are pointing to a slowdown in auto sales.
• FedEx announced earnings this week and lowered its global growth forecast.

Opportunities

• Should a growth scare resurface due to the lack of an announcement of further quantitative easing from the Federal Reserve, bonds may rally again as investors flee to safety, similar to what happened in mid-2010 and mid-2011 when the QE1 and QE2 programs ended.

Threats

• Rising oil and gasoline prices combined with liquidity implications of global easing, led by Europe, may raise the prospect of the reappearance of higher inflation going forward.