In January, the anticipated risk premium for the Global Market Index (GMI) continued its downward trend. GMI, an unmanaged and market-value weighted amalgamation of the key asset classes, is projected to deliver an annualized return of 3.5% above the “risk-free” rate over the long haul. (For a detailed explanation of the equilibrium-based methodology used to create these forecasts, refer to the summary below.) The latest estimate, informed by data through the end of last month, has dipped by 10 basis points from the earlier 3.6% prediction.
● Obama Urged by Former U.S. Officials to Arm Ukrainian Forces | Bloomberg
● U.S. consumer spending in December weakest since 2009 | Reuters
● US ISM Manufacturing Index: Slower Than Expected Growth In January | RTT
● US Factories Brace for Oil Shock as Growth Cools | Bloomberg
● US Construction Spending Rose 0.4 Percent in December | AP/ABC
● PMI: UK Construction Growth Unexpectedly Rebounds in January | Reuters
US real estate investment trusts (REITs) led the major asset classes in January, showing robust performance. The MSCI REIT Index recorded a strong total return of 6.8% for the month, while US REITs soared 33.5% over the trailing year. Conversely, foreign high-yield bonds experienced a significant decline of 5.7%, as indicated by the Markit Global ex-US High Yield Index. Meanwhile, US stocks struggled at the start of the year, with the Russell 3000 Index dropping by 2.8% last month.
● China Manufacturing PMI: Operating conditions slightly deteriorated in January | Markit
● Germany Manufacturing PMI: Output and new orders rose at marginally stronger rates | Markit
● Eurozone Manufacturing PMI: Output increased slightly at the beginning of 2015 | Markit
● Oil prices declined due to weak Chinese data and U.S. refinery strikes | Reuters
● MNI Survey: Japan Q4 GDP up 3.7% annualized, the first increase in three quarters | MNI
● US Demographics and GDP: 2% is the new 4% | Calculated Risk
The ISM Manufacturing Index is anticipated to drop slightly to 55.0 in the upcoming update (February 2) for January, according to The Capital Spectator’s median forecast based on various econometric estimates. This figure remains significantly above the neutral mark of 50.0, suggesting that the outlook for the US manufacturing sector is still healthy and firmly within growth territory.
US personal consumption spending for December is expected to rise by 0.3% compared to the previous month in tomorrow’s update (February 2), based on The Capital Spectator’s median forecast derived from various econometric estimates. This figure reflects a significant slowdown compared to November’s 0.6% increase. Moreover, the prior retail sales data indicates a decline for December, which suggests a higher likelihood of an unexpected downturn in tomorrow’s report. Notably, a model focusing solely on retail sales predicts a fall in personal consumption spending for December (details below).
● The Age of Cryptocurrency: How Bitcoin and Digital Money Are Challenging the Global Economic Order
By Paul Vigna and Michael J. Casey
Review via The Washington Post
Paul Vigna and Michael J. Casey, seasoned reporters from The Wall Street Journal, commendably avoid the usual sensationalism that surrounds their contemporary subject. They present a well-researched narrative that chronicles the rise of Bitcoin, addresses its shortcomings, and emphasizes its potential. “The Age of Cryptocurrency” is an insightful and comprehensive examination of what has been a tumultuous journey for this polarizing currency.
The latest government report reveals that US GDP growth in the fourth quarter fell short of expectations. The national output increased by 2.6% in the last three months of 2014 compared to the previous quarter (seasonally adjusted annual rate). Economists had forecasted a more robust growth rate of 3.2%, according to a survey by Econoday.com.
Housing continues to present challenges for the US economy, as highlighted by yesterday’s report indicating a larger-than-expected decline in the Pending Home Sales Index, a forward-looking measure of demand. According to the National Association of Realtors (NAR), the benchmark fell by 3.7% last month. However, the year-over-year trend offers a more positive outlook, showing growth for the fourth consecutive month. Moreover, recent drops in mortgage rates and favorable employment data provide grounds for cautious optimism. Nonetheless, the sluggish housing market reflects broader issues that extend beyond just the pending sales data.
