In recent days, macroeconomic risk in the United States has diminished, attributed to a combination of positive economic indicators and a recovery in financial markets. Although the potential for economic challenges remains heightened compared to the outlook of the fourth quarter last year, the current data appears less alarming than the continuous streams of caution seen in preceding weeks.
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● Robust US industrial output in January strengthens growth outlook | Reuters
● US housing starts unexpectedly decline by 3.8% in January | RTT
● Atlanta Fed lowers US Q1 GDP estimate to +2.6% | Atlanta Fed
● Business inflation expectations from the Atlanta Fed remain unchanged at +1.8% for February | Atlanta Fed
● OECD revises global growth forecast downward, citing increasing risks | Bloomberg
● Japan experiences the largest decline in exports since 2009 due to global slowdown | Reuters
● China’s January inflation data indicates ongoing deflationary pressures | Reuters
It’s a classic tale of moving forward and then faltering. Residential construction in January was weaker than anticipated, while industrial production surged after declines in the previous three months, according to reports from the US Census Bureau and Federal Reserve. The overall economic data suggests a mildly optimistic tone. Contextualized with prior January figures, today’s results indicate that last month is unlikely to signal the beginning of a new NBER-defined recession. Although the near-term outlook remains somewhat unstable, today’s findings imply that the US economy may navigate its recent difficulties and avert a downturn.
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Following last week’s significant drop in Treasury yields, there has been a shift back towards risk appetite in the market. Today’s dual updates on US industrial production and housing construction for January will help gauge whether the recent optimism among investors is justified. For now, it appears that the bond market is reconsidering its assessment of a looming recession. Simultaneously, equity markets displayed a similar sentiment, as evidenced by yesterday’s notable gains.
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● New York Fed manufacturing index for February shows ongoing contraction for the seventh consecutive month | RTT
● Homebuilder confidence declines in February, reaching a nine-month low | HousingWire
● Fed’s Kashkari emphasizes the need for further steps to avoid financial crisis recurrence | WaPo
● The stock market does not reflect the economy | Strategy+Business
● Reasons why a new OPEC deal may not lead to higher oil prices | USA Today
● UK joblessness stabilizes from October to December, while wage growth slows | MNI
● China deploys missiles to contested island in the South China Sea | Reuters
According to The Capital Spectator’s average forecast based on various econometric estimates, US industrial production is anticipated to rise by 0.1% in the upcoming January report compared to the previous month. This would mark the first monthly increase in five months.
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The forecast for housing starts in the January update is projected at 1.157 million units (seasonally adjusted annual rate), according to The Capital Spectator’s averaged projections from multiple econometric estimates. This indicates a modest rise compared to the previous month’s residential construction levels.
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If the Atlanta Fed’s GDP nowcast for the first quarter is accurate, the macroeconomic trend could be beginning to accelerate in the new year, following a sluggish Q4. If this prediction holds true, it would also confirm that recent recession warnings from the market may not have been warranted.
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● ECB’s Draghi alludes to the possibility of increased stimulus | USA Today
● German ZEW Indicator of Economic Sentiment shows continued decline | ZEW
● Saudi Arabia and Russia reach agreement on oil-output freeze | Bloomberg
● US recession risks are surfacing, but how likely is this outcome? | Forbes
● UK inflation reaches a 12-month high in January | MNI
● Economists on the left challenge the cost estimates of Bernie Sanders’s proposals | NY Times
Last week continued the trend of safe-haven investments, as observed in the performance of major asset classes through a selection of proxy ETFs. Bonds emerged as the clear leader during the five trading days through February 12, with the SPDR Barclays International Treasury ETF (BWX) providing a solid 1.4% total return for the second consecutive week. The slightly weaker US dollar has contributed to the improved performance of foreign bonds on an unhedged basis, as evidenced by the US Dollar Index’s decline over the past two weeks. In contrast, US REITs (VNQ) experienced the largest weekly loss among major asset classes, dropping 4.4% in the week just concluded.
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In summary, the latest US economic indicators suggest a slight easing of macroeconomic risks, even while challenges persist. Although certain sectors show mixed performance, a cautiously optimistic outlook prevails, indicating the potential for ongoing stability in the economy. As markets respond to these developments, investors remain vigilant about the possibility of economic shifts in the near future.
