The Economy and Bond Market Diary (4/10/2010)
Treasury bond yields were modestly higher this week on generally stronger than expected economic data.
With little in the way of high impact domestic economic data this week we turn our sights to the international markets. The headlines were dominated by negative news on the Greek debt situation and how it appears very likely the IMF will need to step in and provide a loan to Greece to calm the markets. With all the hoopla surrounding the Greek situation, many investors may have missed some very impressive positive data points out of China. Chinese passenger car sales rose 63 percent year-over-year and hit 1.26 million units, the second highest monthly total ever. For the first quarter, passenger car sales total 3.52 million units, 76 percent higher than a year ago and an annualized pace of 14 million vehicles which would likely place China as the largest car market in the world for the second year in a row. The Chinese government is providing subsidies to encourage purchases and it is obviously providing a big economic lift.
Strengths
- In addition to the very strong car sales in China, Russian car sales jumped 38 percent month-over-month with the introduction of a “cash for clunkers” program. These strong car sales globally are very positive for the global economic recovery.
- Retailers appeared to have another good month as March same store sales data beat expectations in a wide margin and gains were across a wide variety of store types.
- The ISM Non-Manufacturing Index rose to the highest level since May 2006 in a sign the service sectors are seeing a pick up in activity.
Weaknesses
- Concerns surrounding the Greek debt situation create significant uncertainty for the whole euro zone area and likely dampen investor and business sentiment.
- Mortgage rates hit the highest level in eight months and are a headwind for the housing markets.
- Australia raised interest rates for the fifth time in the past seven months citing a strengthening economy driven by strong Asian demand. The Reserve Bank of Australia also indicated that more rate hikes were likely in the near future.
Opportunities
- If financial markets are a good mechanism for discounting the future, the future appears relatively robust. The markets have been able to shake off bad news relatively easily recently, probably a good sign for the economic recovery.
Threats
- When governments around the world begin to wind-down the monetary and fiscal stimulus programs put in place during the economic crisis, it will likely present a headwind for the economy.
