The Economy and Bond Market Radar (April 16, 2012)
Treasuries rallied this week, sending yields sharply lower. The nonfarm payrolls report that was released on Good Friday disappointed and with negative rumblings out of Europe, it was a “risk off” week. China reported first quarter GDP growth below expectations, which increases the likelihood of additional policy accommodation from the Chinese authorities in the near future.
Strengths
- Natural gas fell below $2 this week, providing consumers with some relief to higher gasoline prices.
- Several inflation data points were released this week and were overall in line with expectations. This is generally supportive of the existing Federal Reserve policies.
- Wholesale inventories rose 0.9 percent in February, indicating continued restocking that should boost first quarter GDP in the U.S.
Weaknesses
- March nonfarm payrolls grew a modest 120,000, well below market expectations.
- Weekly initial jobless claims jumped to 380,000 this week, the highest reading since January.
- Spain remains in the spotlight as yields spike higher and investors remain nervous about long-term solutions for the country’s financial woes.
Opportunity
- The weak Chinese GDP number implies that the current global easing policies are likely to remain in place for the foreseeable future.
Threat
- Rising oil and gasoline prices, combined with liquidity implications of global easing led by Europe, may raise the prospect of higher inflation going forward.
