The Economy and Bond Market Cheat Sheet (April 4, 2011)
Treasury bond yields were mixed this week as investors balanced generally better economic data with continued uncertainty surrounding several global macro issues.
Employment data continues to slowly improve. The trend in initial jobless claims can be seen in the chart. Along with the employment data released on Friday, which indicated a gain of 216,000 jobs in March, there are signs that the economy is slowly but steadily improving.
Strengths
- Initial jobless claims remained in a general downtrend, potentially indicating a pickup in hiring and the economy overall. Nonfarm payrolls rose 216,000 in March and the unemployment rate fell to 8.8 percent.
- The ISM Manufacturing Index remained at an elevated level in March indicating continued strength in manufacturing.
- The Conference Board’s Index of Leading Economic Indicators for Europe rose for the fourth straight month in February.
Weaknesses
- Consumer confidence dropped sharply in March as higher gasoline prices took a toll.
- Federal Reserve officials were active again this week, with a fair amount of banter back and forth on the merits of the current quantitative easing and the future course of monetary policy.
- Eurozone inflation rose to 2.6 percent in March, which is the highest level since 2008 and reinforced views that the European Central Bank will raise interest rates soon.
Opportunities
- In an interesting twist, higher oil prices may actually act as a deflationary force if they materially slow global economic growth.
Threats
- Central bankers around the world are already raising interest rates and it appears England and Europe are poised to do the same. This would leave the U.S. in a difficult situation defending its current policy.
