The Economy and Bond Market Radar (August 20, 2012)
Treasury yields rose for a fourth week in a row. Additionally, the benchmark 10-year yield is on the verge of breaking above the technically significant 200-day moving average.
Strengths
- The Thomson Reuters/University of Michigan preliminary August index of consumer sentiment increased to 73.6, the highest level since May, from 72.3 the prior month.
- The four-week average for initial jobless claims remains at its lowest level since March.
- According to the Conference Board’s gauge of Leading Economic Indicators, the economic outlook for the next three to six months increased 0.4 percent last month after a revised 0.4 percent drop in June. Economists projected the gauge would rise by 0.2 percent.
Weaknesses
- Initial jobless claims rose slightly to 366,000 this week, somewhat muddling the picture for the job market.
- Manufacturing in the Philadelphia region contracted in August for a fourth consecutive month as orders and employment declined.
- China July foreign direct investment fell 8.7 percent year-over-year to $7.58 billion, its lowest level in two years, which fuels concern that a slowdown in confidence in China's growth prospects may restrain any economic rebound.
Opportunity
- The ECB appears ready to implement some form of QE in the very near future.
- With further weak economic data out of China, the 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.
