A Synchronous Expansion

Major developed economies are all contributing to global economic growth, and this improving fundamental picture, coupled with ongoing monetary accommodation, bode well for risk assets.

December 03, 2013    |    By Scott Minerd

Global CIO Commentary by Scott Minerd

The global economy is at the start of the first global synchronous expansion since 2007. In Europe, the periphery has lived through a depression, but as prices have declined, unit labor costs have fallen, spurring recovery. Overall, Europe is expanding and the outlook is further buoyed by rising expectations that the European Central Bank will likely engage in some form of quantitative easing. Chinese manufacturing data showed strength over the weekend, and while not reflecting vibrant growth, it is reasonable to say that the worst is probably behind Asia’s largest economy for the time being.

In the United States, Black Friday retail sales were somewhat disappointing at first glance. The lower level of sales were likely the result of deeper price discounts, suggesting that the U.S. economy could face deflationary pressure. That concern, coupled with stubbornly high unemployment, indicates that there is only a remote chance that the Federal Reserve will change monetary policy in December and risk upsetting the crucial holiday retail season. Interest rates, therefore, should remain range bound through the end of the year and Fed-driven liquidity will likely continue pushing U.S. stocks higher.

Any eventual change in QE will almost certainly be accompanied by incoming Fed Chairman Janet Yellen changing forward guidance, such as keeping rates at the zero bound until 2016, and possibly reducing the unemployment threshold to 6 percent from 6.5 percent. So, absent an unexpected shock that could disturb financial markets, the current environment should remain favorable for risk assets.

Historically, after a year with such strong U.S. stock returns as we have seen this year, equities have continued to climb on average another 7 percent in the first quarter of the next year. Still, long-term investors should remain wary that this rally is in a late phase, but for now, momentum and monetary accommodation should drive asset prices higher, and some of the sharpest gains often come as the market nears its peak.

Signs of Synchronized Global Expansion

The latest readings of global Purchasing Manager Indices (PMIs) reflect a convergence in manufacturing activities across different regions. Major advanced economies, including the United States, United Kingdom, Japan, and the euro zone, have seen expanding manufacturing activities for five consecutive months through November. Benefiting from the recovery in external demand from advanced economies, manufacturing activity in most emerging countries such as China, India, South Africa, and Turkey has also returned to expansion after a slump over the summer. One exception is that manufacturing activities in some commodity-driven countries continue weakening as major commodity prices remain depressed.



Source: Markit, Haver Analytics, Guggenheim Investments. Data as of 11/30/2013. *Note: The PMI data for the U.S. is from the ISM manufacturing index, for China is from the official PMI index, and for other countries are from Markit.

Economic Data Releases

Encouraging Data from ISM, Home Sales, and Confidence

  • The ISM manufacturing index rose to 57.3 in November, the highest since April 2011.
  • New home sales surged in October to an annualized pace of 444,000, a 25.4% jump from September’s low.
  • The November University of Michigan consumer confidence index increased for the first time since July, rising to 75.1 from 73.2.
  • The leading indicator index rose more than expected in October, up 0.2%, the fourth consecutive month of growth.
  • Durable goods orders fell 2.0% from a month earlier in October. Excluding transportation orders were down 0.1%. Non-defense capital goods orders, excluding aircraft, unexpectedly fell for a second month.
  • Construction spending in the United States increased 0.8% in October after September’s 0.3% decline.
  • The U.S. trade deficit narrowed in October to -$40.6 billion after widening for the past three months.
  • The ISM non-manufacturing index was under expectations at 53.9 in November, down from 55.4.
  • Initial jobless claims continued to decline for the week ended November 23rd, reaching 316,000 after the eighth straight decrease.
  • Mortgage applications dropped 12.8% for the holiday shortened week ended November 29th, the worst week since September 6th.

Growth Remains Steady in the Euro Zone and China

  • The euro zone manufacturing PMI for November was revised up to 51.6 in the second estimate.
  • The November euro zone services PMI was revised up to 51.2 from 50.9 in the second estimate, helped by Germany’s revision from 54.5 to 55.7, the highest since January.
  • Euro zone retail sales fell for a second consecutive month in October, down 0.2%. The year-over-year reading returned to negative territory after September’s positive reading.
  • Euro zone economic confidence rose more than expected in November, reaching a 27-month high of 98.5.
  • The euro zone unemployment rate ticked down to 12.1% in October, the first decrease since February 2011.
  • The euro zone CPI increased to 0.9% year-over-year in November from 0.7% in October.
  • German unemployment increased for a fourth consecutive month in November, rising by 10,000.
  • German retail sales decreased for a second consecutive month, unexpectedly falling 0.8% in October.
  • French consumer confidence inched down from 85 to 84 in November.
  • Italy’s services PMI slipped into contractionary territory in November at 47.2 following two months in expansion.
  • China’s official manufacturing PMI showed a steady pace of expansion in November, remaining at 51.1. The HSBC manufacturing PMI ticked down from 50.9 to 50.8.
  • China’s non-manufacturing PMI slowed slightly in November, from 56.3 to 56.0.
  • Japan’s CPI was unchanged in year-over-year terms in October, remaining at 1.1%. Excluding food and energy, the CPI rose 0.3% from a year earlier, up from 0.0% in September.
  • Japanese industrial production rose a less-than-expected 0.5% in October.


September 17, 2019

Forecasting the Next Recession: Will Rate Cuts Be Enough?

History shows that once our recession forecast model reaches current levels, aggressive policy can delay recession, but not avoid it.

August 22, 2019

Looking Past the Liquidity-Driven Rally

Credit spreads could get tighter in this liquidity-driven rally, but history has shown that the potential for widening from here is much greater.

July 29, 2019

The Fed's Sugar High

Rational immigration policy, not rate cuts, is the way to avoid recession.


Third Quarter 2019 Fixed-Income Outlook 

Third Quarter 2019 Fixed-Income Outlook

Portfolio Manager Adam Bloch and Matt Bush, a Director in the Macroeconomic and Investment Research Group, share insights from the third quarter 2019 Fixed-Income Outlook.

Core Fixed-Income Conundrum 

Solving the Core Conundrum

Anne Walsh, Chief Investment Officer for Fixed Income, shares insights on the fixed-income market and explains the Guggenheim approach to solving the Core Conundrum.

Read a prospectus and summary prospectus (if available) carefully before investing. It contains the investment objective, risks charges, expenses and the other information, which should be considered carefully before investing. To obtain a prospectus and summary prospectus (if available) click here or call 800.820.0888.

Investing involves risk, including the possible loss of principal.

Guggenheim Investments represents the following affiliated investment management businesses of Guggenheim Partners, LLC: Guggenheim Partners Investment Management, LLC, Security Investors, LLC, Guggenheim Funds Investment Advisors, LLC, Guggenheim Funds Distributors, LLC, GS GAMMA Advisors, LLC, Guggenheim Partners Europe Limited and Guggenheim Partners India Management. Securities offered through Guggenheim Funds Distributors, LLC, an affiliate of Guggenheim, SI, GFIA and GPIM.

© Guggenheim Investments. All rights reserved.

Research our firm with FINRA Broker Check.

• Not FDIC Insured • No Bank Guarantee • May Lose Value

This website is directed to and intended for use by citizens or residents of the United States of America only. The material provided on this website is not intended as a recommendation or as investment advice of any kind, including in connection with rollovers, transfers, and distributions. Such material is not provided in a fiduciary capacity, may not be relied upon for or in connection with the making of investment decisions, and does not constitute a solicitation of an offer to buy or sell securities. All content has been provided for informational or educational purposes only and is not intended to be and should not be construed as legal or tax advice and/or a legal opinion. Always consult a financial, tax and/or legal professional regarding your specific situation. Investing involves risk, including the possible loss of principal.