The Economy and Bond Market Radar (October 22, 2012)
Treasury bond yields rose this week on better-than-expected economic data. Long-term yields hit their highest levels in a month before pulling back on Friday.
Housing starts and building permits in September were much stronger than expected, rising 15 percent and 11.6 percent, respectively, on a month-over-month basis. The chart below shows the long-term trend in housing starts and building permits. While housing is in recovery mode, we still have a long way to go before the housing market normalizes.
Strengths
- Housing starts reached the highest level in four years, continuing the recent trend of strong datapoints out of the housing market.
- Global central bank easing continues with Turkey and Brazil both cutting interest rates by 25 basis points this week.
- Retail sales rose 1.1 percent in September and, while boosted by iPhone5 sales, the gains were broad-based.
Weaknesses
- Initial jobless claims bounced higher this week indicating no improvement on the employment front.
- European Union new car sales fell 10.8 percent in September which was the twelfth straight month of decline.
- Consumer prices in the eurozone rose 2.6 percent in September, with austerity-led tax hikes as a partial driver.
Opportunity
- There remains considerable speculation about the prospects in China for near-term government policy action 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.
