The Economy and Bond Market Radar (November 5, 2012)
Treasury bond yields were little changed this week as Hurricane Sandy was the center of attention for much of the week and while economic data was generally better than expected the bond markets didn’t react much.
The much anticipated employment report was better than expected with 171,000 nonfarm payrolls added last month, ahead of 125,000 estimate. Nonfarm payrolls are plotted below and as can be seen in the chart have been bouncing around with steady results but at a low level and with not enough growth to substantially bring down the unemployment rate, which actually ticked up slightly to 7.9 percent in October.
Strengths
- Nonfarm payrolls were better than expected and show some improvement in the underlying economy, which is encouraging given the weakness in much of the rest of the world.
- The ISM manufacturing index rose to 51.7 and indicates faster expansion in the manufacturing sector. The only caveat is the underling trends weren’t as strong as the headline results suggest.
- Consumer confidence rose to 72.2 in October, reaching the highest level since February 2008.
Weaknesses
- Eurozone unemployment rose to the highest level since records began for the series in 1995, hitting 11.6 percent.
- Japan’s industrial production fell 4.1 percent in September.
- Brazil industrial production fell 1 percent in September, worse than expected.
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.
