American Allure

Global CIO Commentary by Scott Minerd

U.S. economic data continues affirming our positive outlook for the U.S. economy. The Job Openings and Labor Turnover Survey showed that the number of job openings waiting to be filled in the United States rose by 289,000 to 4.5 million in April -- the highest since September 2007 -- as employers sought more workers to satisfy demand in a growing economy. As those positions get filled in the coming months, we can expect a dip in the U.S. unemployment rate. At first blush, the less-than-expected rise in retail sales of 0.3 percent for May seemed uninspiring. However, sometimes the devil is in the details and the revisions can be more important than the headlines. April retail sales were revised upward to a 0.5 percent increase, supporting our positive outlook for second-quarter GDP growth.

Overseas, there are renewed signs of life in China’s economy. I have long contended that China would likely turn to renewed export growth to offset domestic demand problems. Supporting my view, exports grew in May by 7 percent from the same month last year and the trade balance expanded rapidly, thanks to improving economies in Europe and the United States. China has enacted a number of policies in recent months to support the housing market and overall economic growth, and the latest data -- including rising retail sales and industrial production -- seem to confirm that conditions are improving.

The latest round of monetary policy actions by the European Central Bank should be positive for the euro zone, and indirectly for the United States. In Europe, the risk is that the euro will depreciate, which makes buying U.S. Treasury bonds and other U.S. assets attractive for European investors as interest rates are significantly higher in the United States than in Europe. Indeed, yields on Irish 10-year debt have at times drifted below that of U.S. Treasuries, underscoring this interest rate differential.

On balance, the global economy appears to be firing on all cylinders. In the current environment, U.S. stocks and bonds should continue performing well. However, with most U.S. fixed-income assets now richly priced, we must guard against the pitfalls of overvaluation. For now however, as I wrote in my Market Perspectives commentary last week, the outlook remains positive.

Exports to U.S. and Europe Give China Near-Term Boost

With domestic demand dampened by a slowing housing market and troubles in the banking sector, China must reaccelerate exports to keep economic growth rates at acceptable levels. Luckily for Beijing, economic improvements in the United States and Europe are coming just in time to boost exports. While China needs more reforms to ensure sustainable economic growth, the brighter outlook for the euro zone and the United States, which together account for nearly one-third of Chinese exports, should help the Chinese economy in the near term.

CHINESE EXPORTS AND U.S./EURO ZONE DEMAND

Source: Haver, Guggenheim Investments. Data as of June 18, 2014.

Economic Data Releases

U.S. Data Mixed, but Economy on Track to Accelerate

• U.S. retail sales rose 0.3 percent in May after an upwardly revised 0.5 percent gain in April. Sales excluding autos and gas, however, were unchanged.
• Housing starts were weaker than expected in May, falling 6.5 percent to 1.0 million. Both multi-family and single-family starts fell.
• Building permits dropped 6.4 percent in May to an annualized pace of 991,000, with the drop due to a large decline in multi-family permits.
• The NAHB housing market index increased to 49 from 45 in June, the highest in five months.

• Industrial production rose 0.6 percent in May, after a 0.3 percent decline in the previous month.
• University of Michigan consumer confidence was weaker than expected in June, falling to 81.2 from 81.9.
• Initial jobless claims during the week ending June 6 moved up slightly to 317,000.
• The consumer price index rose 0.4 percent on a monthly basis in May, with the year-over-year change accelerating to 2.1 percent. Price increases were led by food and energy, with core prices also rising by the most since August 2011.

Europe Continues Recovery, China Improves

• Euro zone industrial production rose above expectations in April, increasing 0.8 percent, a six-month high.
• Germany’s ZEW survey showed the assessment of the current situation rising to nearly a three-year high in May, while expectations unexpectedly fell to the lowest level since 2012.
• The CPI in the United Kingdom fell in May to 1.5 percent year over year, the lowest since 2009.

• Chinese retail sales exceeded expectations in May, rising 12.5 percent year over year.
• Industrial production in China inched up to 8.8 percent year over year from 8.7 percent.
• Japanese exports were negative in May, falling 2.7 percent from a year earlier, down from a 5.1 percent gain in May.

VIDEOS AND PODCASTS

 

2022’s Upside: The Fed Has Put the Income Back in Fixed Income

Anne Walsh, Chief Investment Officer for Fixed Income at Guggenheim Investments, joined Asset TV to discuss macroeconomic conditions, risk, and relative value in the bond market.

×

2022’s Upside: The Fed Has Put the Income Back in Fixed Income

 

Macro Markets Podcast Episode 26: Mortgage-Backed Securities, Structured Credit, Market Liquidity

Karthik Narayanan, Head of Securitized for Guggenheim Investments, discusses value in the residential mortgage-backed securities market and other ABS sectors. Anne Walsh, Chief Investment Officer for Fixed Income, answers a listener question on liquidity. Jerry Cai, an economist in our Macroeconomic and Investment Research Group, brings the latest on the labor picture and an update on China.

×

Macro Markets Podcast: Episode #26