The Economy and Bond Market Radar (July 2, 2012)
Treasury yields were little changed for the week but show a downward bias. The week was volatile as the market braced for two events, the Supreme Court ruling on healthcare legislation and the EU Summit. While the healthcare ruling will likely affect us more directly the bigger news of the week for the markets was the proposals put forward at the EU Summit. Southern European countries rallied the most on the positive news with Spanish bond yields hitting the lowest level in three weeks, while German yields moved higher on the news.
Strengths
- Durable goods orders rose a better than expected 1.4 percent in May, breaking a string of declines.
- New home sales rose 7.6 percent in May, which is the largest increase since April 2010. The supply of new homes also fell to 4.7 months, which is the lowest level in nearly seven years.
- In another confirmation of strength in housing, the S&P/Case-Shiller 20-city home price index rose 1.3 percent in April.
Weaknesses
- Consumer confidence fell short of expectations and has now declined for four months in a row.
- Weekly initial jobless claims remain stuck in neutral and are indicating softness for the economy and the employment picture.
- The Brazilian central bank lowered its growth forecast for 2012 to 2.5 percent from 3.5 percent.
Opportunity
- The Fed reaffirmed its commitment to an ultra low interest rate policy through 2014 and additional monetary easing is possible in the near future.
Threat
- Europe remains a wildcard with the markets shifting focus on a weekly basis.
