The Economy and Bond Market Radar (March 18, 2013)
Treasury bond yields fell modestly this week as economic growth data out of China disappointed along with a weaker-than-expected University of Michigan Consumer Confidence reading on Friday. Inflation data was also generally viewed as benign this week with year-over-year Consumer Price Index running at 2 percent.
Strengths
- Retail sales rose 1.1 percent in February. The surprisingly strong sales were largely driven by gasoline price increases but did show that the consumer still chose to spend and didn’t cut back elsewhere.
- Initial jobless claims fell again this week as the four-week moving average hit a new 5-year low.
- Industrial production in February increased more than expected and continues a broad recovery in manufacturing.
Weaknesses
- Chinese economic data was weaker than expected and policymakers appear more inclined toward tighter monetary and fiscal policies.
- The University of Michigan Confidence Index was much weaker than expected in February, sending conflicting signals about the consumer.
- Industrial production in the United Kingdom fell 1.2 percent in January, fueling speculation that a “triple” dip recession is looming.
Opportunity
- The Fed still remains committed to an extremely accommodative policy.
- Key global central bankers such as the ECB, Bank of England and the Bank of Japan are still in easing mode. The Bank of Japan in particular appears to be willing to implement additional monetary policy easing in the near future.
Threat
- The economy appears to be gaining momentum. The risk for bondholders is that this trend would continue and bonds selloff.
- Inflation in some corners of the globe is getting the attention of policymakers and may be an early indicator for the rest of the world.
