In January, the liquidity of US monetary policy experienced its steepest decline in decades, as indicated by the inflation-adjusted year-over-year trend in base money (M0). While opinions may vary on whether this alone signals a macroeconomic warning, it is certainly an alarming indicator that has gained significant attention.
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● Chicago Fed Reports Rise in US Economic Activity for January | 24/7 Wall St
● Flash US Manufacturing PMI Signals Concerns for February | MarketWatch
● Germany’s Q4 Growth Confirmed at 0.3% | RTT
● German Business Sentiment Declines for Third Consecutive Month in February | Bloomberg
● Eurozone Economy Slows Amid US Slowdown | VoxEU
● China’s Overproduction Worsening Economic Slowdown, Says Business Group | NY Times
● A New Class of Traders on Wall Street: PhD Coders | NY Times
According to this morning’s update from the Chicago Fed National Activity Index, US economic output in January showed a marginally stronger trend compared to the preceding month. The three-month average of this macroeconomic benchmark, known as CFNAI-MA3, increased to -0.15 last month, aligning with The Capital Spectator’s projection made last Friday.
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Global stock markets rebounded last week as evidenced by a range of proxy ETFs tracking major asset classes. Departing from the recent trend of risk aversion, global equities, along with real estate investment trusts (REITs) and US high-yield bonds, recorded substantial gains during the four-day trading week ending February 19.
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● Core US Consumer Prices Rise by the Most in Over Four Years | Bloomberg
● PMI Indicates Slowest Eurozone Growth in Over a Year | Markit
● PMI Reveals Slowdown in German Manufacturing, Contrast with Solid Services Growth in February | Markit
● PMI Shows Steady Manufacturing Conditions in Japan for February | Markit
● Eurozone Consumer Confidence Takes a Sharp Dive in February | EC
● We Cannot Regain the Recovery We Missed in 2009 | Brad DeLong
● Adaptive Asset Allocation:
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By Adam Butler et al.
Summary via publisher (Wiley)
This practical guide offers insights into dynamic portfolio management, emphasizing a clear and objective investment philosophy. Authored by the team behind Gestaltu.com, it provides straightforward strategies for implementation, covering key topics from foundational principles to forecasting and portfolio optimization. The methodologies shared in this book, supported by both classical and modern research, aim to enhance any investment strategy for individual investors through a comprehensive case study.
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The three-month average of the Chicago Fed National Activity Index (CFNAI) is anticipated to show a slight uptick in the January update, scheduled for Monday (Feb. 22). This projection of -0.15 reflects a small improvement from the previous month, suggesting that US economic activity is operating moderately below its historical growth trend. A reading below -0.70 is considered a signal of an “increasing likelihood” of a recession, according to Chicago Fed guidelines. Based on the current average estimate for January, the CFNAI’s three-month average is expected to demonstrate growth slightly below the historical norm but well above the threshold that typically indicates the beginning of a recession.
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While using historical analysis to forecast the future is fraught with challenges, a careful examination can yield valuable insights into macroeconomic and market relationships. One powerful method in this field is impulse-response (IR) simulations through vector autoregression (VAR) modeling. This econometric technique is effective in exploring a recurring question in economic and financial contexts: What potential impact could y experience if x were to change by z percent?
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● US Jobless Claims Drop to Their Lowest Level Since November | Bloomberg
● Philly Fed Index Indicates Manufacturing Declines for the Sixth Consecutive Month | MarketWatch
● Conference Board’s US Leading Economic Index Declines in January | RTT
● Americans’ Economic Expectations Fall to a Three-Month Low | Bloomberg
● Oregon Lawmakers Approve Landmark Minimum Wage Increase | AP
● The Bull Market in Dubious Economic Forecasts | Krugman/NY Times
Recent positive jobless claims numbers raise further questions concerning the implied warnings of a recession in the US from a market-centric perspective of macro trends. Last week, new unemployment benefit filings decreased more than anticipated, falling to 262,000—approaching the multi-decade low of 255,000 recorded last July. While there are still several unreliable metrics that cause uncertainty, jobless claims should not be a primary concern at this time.
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In summary, these economic indicators highlight a complex interplay between rising prices, fluctuating consumer confidence, and varying expectations about growth. While some signs suggest resilience, the recent contraction in monetary liquidity could signal underlying concerns that warrant close scrutiny as the economic landscape continues to evolve.
