Friday, April 15, 2016

Bonddad Friday Linkfest

We'll be doing our regular monthly economic review on Thursday, April 28th at 3PM CST.  You can sign up at this link.

Are the XLBs Getting Ready For  A Second Upside Move?

Daily Chart of XLBs

There has been mixed news on near-term prospects for global growth.  Immediate downside risks 
around Chinese activity have lessened;  in the United States, indicators of GDP growth in the first quarter of the year have been disappointing, but those for the second quarter are more encouraging. Movements in the prices of risky assets suggest that investors have regained their risk appetite, possibly reflecting more positive global economic data and policy action by central banks. Nevertheless, given weak supply growth, the Committee continues to expect global growth to be somewhat subdued by historical standards.


Domestically, growth has been steady, and the MPC continues to expect CPI inflation to rise over the next year.  The pickup in the price of oil and sterling’s recent depreciation will support that rise. There are some signs that uncertainty relating to the EU referendum has begun to weigh on certain areas of activity, as some decisions, including on capital expenditure and commercial property transactions, are being postponed pending the outcome of the vote.  This might lead to some softening in growth during the first half of 2016.

Weekly Chart of UK ETF

Five-Year Chart of the Pound/Euro

Five Year Chart of the Pound/Dollar

Euro area annual inflation was 0.0% in March 2016, up from -0.2% in February. In March 2015 the rate was -0.1%. European Union annual inflation was also 0.0% in March 2016, up from -0.1% in February. A year earlier the rate was -0.1%. These figures come from Eurostat, the statistical office of the European Union

Y/Y Rate

Y/Y Rate Per Country

Y/Y Rate Per Category

David Madland, economist at the Center for American Progress think-tank, said while Mr Obama’s firm approval ratings suggested he was getting some credit for the improving economy, one might have expected them to have risen more.

The explanation is subdued wage growth, he said, which is more tangible to individuals than GDP growth or unemployment. “People are working more and more to stay in one place,” he said.

While some measures of wage growth have picked up and disposable incomes have been bolstered by lower energy prices, for less prosperous groups the story is one of longer-running stagnation, according to data from the Economic Policy Institute.

There is an alternative view that wages are being held down as a result of the changing composition of the US labour force. In a study released last month, economists at the San Francisco Fed argued one big factor behind wage stagnation nationally was the fact higher-wage baby boomers had begun retiring and that many lower-wage workers sidelined during the recession were again being hired, two colliding trends that together held down measures of earnings growth.

Meanwhile, the middle class, as defined by the Pew Research Center, has shrunk to just under half the US population for the first time in decades, with more of the population shifting to the extremes both above and below the middle.

April marks the last month of the first quarter for retailers. And, although March might have seen more traffic at the malls, April's mall traffic and retail sales are expected to cool down after the Easter holiday. What's more, retailers keep warning us about Q1 earnings. We've received more negative guidance since the beginning of Q1 (February) - more than four times the amount since the beginning of the quarter. In February, we had 12 negative guidance vs. 55 today 

Weekly Chart of the Retail Sector ETF -- the XRTs

Real Retail and Food Service Sales For the Last Year