The Economy and Bond Market Radar (April 29, 2013)
Treasury yields fell this week as a weaker-than-expected first quarter GDP report reinforced the view that the Federal Reserve will not scale back its quantitative easing (QE) program anytime soon. The 10-year Treasury fell to the lowest levels of the year, as seen in the chart below.
Strengths
- New home sales rose 1.5 percent in March and new home prices rose 3 percent year-over-year.
- University of Michigan Confidence Index rose from the preliminary estimate earlier in April and may be an early indicator of a positive change in sentiment.
- The U.K. economy grew 0.3 percent in the first quarter, better than expectations for no growth, as the country avoided a triple-dip recession.
Weaknesses
- The HSBC Flash Manufacturing PMI for China unexpectedly fell in April. Chinese policy makers appear prepared to weather some slowdown in growth in an effort to cure imbalances in the economy.
- Durable goods orders in March fell 5.7 percent. Excluding volatile transportation, durable goods orders fell 1.4 percent. The manufacturing sector is off to a weak start for 2013.
- The German Ifo Institute business sentiment index fell for the second straight month and breaks the trend of improving sentiment in one of Europe’s key markets.
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.
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.
