The Economy and Bond Market Radar (January 21, 2013)
Treasury bond yields fell slightly this week as market-moving economic data was light and the equity market was unusually subdued as it awaited a heavy earnings calendar next week. The most impactful news from this week was the surprising acceleration in housing starts, which rose 12.1 percent in December. The economy is beginning to “feel” better and housing is a key piece to that puzzle, possibly setting up the economy to positively surprise in 2013.
Strengths
- December housing starts rose a robust 12.1 percent. Housing starts rose 28.1 percent in 2012, the biggest annual increase since 1983.
- Initial jobless claims fell to 335,000, a five-year low.
- December retail sales rose a better-than-expected 0.5 percent. Auto sales rose 1.6 percent and were a key driver of the stronger-than-expected reading.
Weaknesses
- The University of Michigan Consumer Confidence Index unexpectedly fell to 71.3 from 72.9; expectations were for a rise. Higher payroll taxes were cited as the driver behind the fall.
- Eurozone industrial production fell for the third straight month in November.
- German GDP contracted by 0.5 percent in the fourth quarter and the government cut its 2013 growth forecast to a meager 0.4 percent.
Opportunity
- The debt ceiling debate appears to be pushed into April, allowing the market to focus on economic fundamentals.
- While some Federal Reserve members expressed concerns over continued quantitative easing, the Fed still remains committed to an extremely accommodative policy until the economy improves.
- Globally, central banks are increasing their stimulative policies, with Japan’s recently elected prime minister vowing to take on deflation and deflating the Yen.
Threat
- Earnings season will kick into high gear next week. With mixed results from the few companies that reported this week, focus will be on the outlooks for 2013.
