The Economy and Bond Market Radar (October 15, 2012)
Treasury bond yields fell this week on increased uncertainty out of Europe. The Spanish bailout is currently on hold and mixed messages from numerous European officials just added a little more uncertainty to the situation this week.
The chart below shows a surprising uptick in the University of Michigan Consumer Confidence Index which is at the highest level since September 2007. The increasing confidence is being attributed to rising house and stock prices, giving investors a wealth effect.
Strengths
- The University of Michigan Consumer Confidence Index unexpectedly hit the highest level in five years, confirming other recent confidence indicators exhibiting strength.
- Global central bank easing continues with Brazil and South Korea both cutting interest rates by 25 basis points this week.
- U.S. foreclosure filings fell to the lowest level since July 2007; California reported a large drop in foreclosures.
Weaknesses
- Inflation measures reported a sharp jump in September as both the Producer Price Index and the Import Price Index rose 1.1 percent. On a year-over-year basis the readings remain muted but a trend worth watching.
- The World Bank and International Monetary Fund cut their growth estimates for China this week, while not totally surprising, the negative assessment remains.
Opportunity
- There remains considerable speculation about the prospects for near-term government policy action in China that would support the economy or stock market.
- Interest rates are likely to remain very low for the foreseeable future, both here in the U.S. and globally.
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.
