Economic Outlook: Watching Bubbles in the Data Pot.
- There are a lot of bubbles coming to the top of the data pot of economic releases. Watching each one pop paints an interesting picture.
- Single-family new home sales fell in March by more than 11%. However, both of the previous months’ numbers were revised upwards. There is also some indication that adverse weather impacted the new home sales numbers. It is notable that existing home sales demonstrated a significant rebound in March.
- A number of the Fed’s Regional Manufacturing Indices have declined in the past two months exhibiting some softening of conditions in that sector. It is not confined to a single region in the country.
- Nonetheless, Markit’s Flash PMI Manufacturing at 54.2 remains in solid growth territory, despite the declines in the Fed Regional surveys.
- As we discussed last week, global oil prices are holding fairly steady. Lower prices may finally be beginning to crimp crude oil production. According to data from the EIA, crude production declined for the third time in the last four weeks.
- The momentum for global growth seems to have at least modestly shifted at the margin. The IMF released its latest global economic forecast, calling for global growth of 3.5% for 2015 last week. The U.S. growth forecast was reduced from 3.6% to 3.1%. The anticipated growth rate for both the Euro-zone and Japan were raised.
- The dollar rally seems to have stalled out for the time being, the exchange rate with the Euro is bouncing around 1.08 dollars per Euro.
- The weakened Euro may be finally boosting foreign demand. The data for Eurozone exports showed an increase of 2.8% month-to-month in February and are now ahead about 4.0% year-over-year.
- German LFO Business Conditions Index hit a ten month high in April and beat consensus expectations. The strength is not limited to Germany. Spain’s Producer Price Index jumped 0.5% in March and some of the components are now +1.2% year-over-year.
Equities Outlook: Running Scared?
- The U.S. equity market shows considerable disparity year-to-date. Large capitalization stocks are fairly flat, thanks mostly to strong dollar effects. Smaller cap stocks, on the other hand, with little dollar exposure are up roughly 6.0% so far in 2015.
- Despite the strong dollar effects, U.S. S&P 500 companies are generally (70%+) beating earnings expectations for Q1.
- Perhaps analysts are running a bit too scared on their earnings forecasts, with the alarms sounding on low oil prices and the strong dollar. After all, U.S. corporate managements anticipate these 2 factors and attempt to adjust strategy to compensate where possible.
- The Japanese equity market is one of the few that remains significantly depressed from its previous highs (more than 50%). The Nikkei has turned in double digit gains year-to-date with a fairly stable dollar-yen relationship. Earnings revisions are strong, so there is probably more room for this to run.
Fixed Income Markets: Where Has the Yield Gone?
- The decline in the yield on the 10-Year Treasury Note reversed modestly last week, as the yield on the 10-Year closed at 1.91%, slightly elevated from the previous week’s 1.87% yield.
- In this low-yield environment, it is a bond market where investing for the spread may make more sense than investing for yield (since there simply is not much yield).
The Week Ahead
- U.S., Conference Board Consumer Confidence
- U.S., GDP (BEA)
- U.S., Pending Home Sales
- U.S., FOMC Meeting Announcement
- U.S., PMI Manufacturing (Markit)
- U.S., ISM Manufacturing