The Economy and Bond Market Radar (August 13, 2012)
Treasury yields rose for the third week in a row. It is interesting that as we get closer to additional monetary easing in the U.S., Europe and China, the Treasury bond market has already anticipated that and is selling into the news. This would follow a similar pattern as the two quantitative easing programs in 2009 and 2010, as bond yields moved higher immediately after the announcements.
Strengths
- Initial jobless claims fell to 361,000 this week, indicating a somewhat better job dynamic than a couple of months ago.
- The Labor Department reported that job openings in June were the highest since July 2008.
- The U.S. trade deficit narrowed to $42.9 billion in June, lower by more than $5 billion. Exports grew while imports contracted.
Weaknesses
- New foreclosures rose 6 percent in July, the third monthly increase in a row.
- European economic data remains weak as Italian GDP has contracted for four quarters in a row.
- Economic news out of China was weaker than expected for July as exports grew a meager 1 percent and industrial production was weaker than expected.
Opportunity
- The ECB appears ready to implement some form of quantitative easing in the very near future.
- With weak economic data out of China this week, odds of additional easing measures continue to move higher.
- Interest rates are likely to remain very low for the foreseeable future.
Threat
- Europe remains a wildcard with the markets shifting focus on a weekly basis.
- China also remains somewhat of a wildcard as the economy has slowed and officials appear in no hurry to take decisive action.
