The Economy and Bond Market Radar (April 15, 2013)

The Economy and Bond Market Radar (April 15, 2013)

Treasury yields were little changed this week as global economic data was mixed and stocks rallied. U.S. economic data was generally weaker than expected, while Chinese data was generally better than expected. The University of Michigan Consumer Confidence Index fell to the lowest level since July and is somewhat symptomatic of the economic data of late. As can be seen in the chart, the pattern has been very choppy and more or less moving sideways. So while financial market sentiment improves, we aren’t necessarily seeing that improvement in the data.

click to enlarge

Strengths

• Chinese imports in March rose 14.1 percent, doubling expectations and signaling an improving Chinese economy. Chinese inflation slowed in March to 2.1 percent, which reduces pressure on the central bank to tighten monetary policy.
• Minutes from the Fed’s March 19-20 meeting more or less reiterated its commitment to QE and focus on job growth.
• Inflation data remains benign with import prices and producer prices both falling in March.

Weaknesses

• Retail sales fell 0.4 percent in March which was well below estimates. Poor weather played a role as it was unseasonably cold in many parts of the country.
• In addition to the University of Michigan Confidence Index mentioned above, the National Federation of Independent Business’s Sentiment Index (small business) also fell in March and hiring plans hit the lowest level in a year.
• Chinese bank loans surged in March, raising inflation concerns and potentially spurring government action to slow growth.

Opportunity

• The Fed continues to remain committed to an extremely accommodative policy.
• Key global central bankers are still in easing mode such as the European Central Bank (ECB), Bank of England and the Bank of Japan. The Bank of Japan in particular is aggressively easing currently.

Threat

• Inflation in some corners of the globe is getting the attention of policy makers and may be an early indicator for the rest of the world.
• Trade and/or currency “wars” cannot be ruled out, which may cause unintended consequences and volatility in the financial markets.