Last week, Federal Reserve Chair Janet Yellen addressed an audience, announcing that interest rate increases are on the horizon. While she emphasized that these hikes will occur gradually, she suggested that economic improvements may justify raising the target range for the federal funds rate later this year. “With continued improvement in economic conditions, an increase in the target range for [the federal funds rate] may well be warranted later this year,” Yellen advised. However, the path to this increase may be complicated, particularly given the disappointing economic growth observed in the first quarter of this year. Meanwhile, the Treasury market appears unfazed by Yellen’s comments, with yields on government bonds remaining significantly below recent highs—suggesting a divergent outlook than that suggested by the Fed chair.
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● US consumer spending in February shows only a slight increase despite rising incomes | LA Times
● February sees a greater-than-expected rise in pending sales of US homes | Bloomberg
● Concerns about Eurozone deflation ease as price drops slow | MarketWatch
● Eurozone unemployment rates notch down to 11.3% | FT
● Germany reports a record low unemployment rate | RTT
● German retail sales growth slows, but not as sharply as expected in February | RTT
● French consumer spending has risen for the fourth consecutive month | RTT
● Small business borrowing in the US slipped in February but remains up year-over-year, according to PayNet | Reuters
According to the Bureau of Economic Analysis, consumer spending in the US showed a slight increase of 0.1% in February compared to January. This rise, while below economists’ expectations, marks the first monthly advance since November. Although this shift back toward positive growth is a positive sign, the overall trend remains muted. Questions linger about whether the harsh winter weather is responsible for the slow growth, leading to speculation that warmer conditions could provide a necessary boost. Based on the latest data, it’s evident that consumer spending continues to decelerate on an annual basis, a trend mirrored in disposable personal income, which also saw reduced growth rates last month compared to the same time last year.
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The US real estate market has faced challenges recently; however, recent data suggests a potential upswing as we enter spring. Although the evidence remains thin, February saw a notable improvement in sales, especially for newly built single-family homes. This raises the question: Is the housing market beginning to firm up? Should this improvement continue, it may provide a more optimistic outlook for the US economy.
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● Economic outlook from business groups for the US appears more optimistic | LA Times
● Eurozone economic sentiment shows improvement in March | European Commission
● Economic confidence in the Euro area suggests recovery, despite Greek risks | Bloomberg
● Japan faces a decline in factory output due to weak exports; Q1 expectations remain positive | MNI
● UK financial services express the strongest optimism since December 2013, according to a survey | RTT
● US consumer sentiment declines less than initially predicted for March | RTT
● The fourth quarter GDP growth in the US remains unchanged at 2.2% | RTT
For February, US personal consumption spending is projected to increase by 0.3% compared to the previous month, according to The Capital Spectator’s median forecast based on various econometric projections. This suggests a modest rebound following a 0.2% decline in January.
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● Invest with the Fed: Maximizing Portfolio Performance by Following Federal Reserve Policy
By Robert R. Johnson, et al.
Essay by co-author (Robert R. Johnson) via ValueWalk
In the recently published McGraw-Hill book – Invest with the Fed – my co-authors, Gerald R. Jensen from Northern Illinois University, Luis-Garcia-Feijoo from Florida Atlantic University, and I, provide an in-depth analysis of capital market performance during different Fed policy periods from 1966 to 2013. This work is the culmination of over 25 years of extensive research on Fed policy and capital market returns. Inside, we examine returns across various asset classes—including stocks, bonds, hedge funds, alternative assets, and foreign equities—and also analyze returns for different equity styles such as value, growth, and momentum.
One of our key findings indicates that it is not merely the absolute level of interest rates that impacts security returns, but rather the changes in interest rates that hold significance.
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The ongoing drought in California is becoming increasingly significant in terms of its potential economic ramifications for the US. As the state with the largest GDP, contributing over 13% to the national output according to 2013 data from the US Bureau of Economic Analysis, its extended dry spell—now entering its fourth year—raises concerns about California’s growth prospects. A decline in California’s economic health due to drought could have broader implications for the national economy.
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● Jobless claims in the US have fallen to their lowest level in five weeks | Bloomberg
● March sees the sharpest increase in US service sector activity in six months | Markit
● Consumer comfort in the US has reached its second-highest level since 2007 | Bloomberg
● France’s consumer confidence in March is at its highest since November 2010 | MNI
● Japan experiences a larger-than-expected drop in retail sales in February | RTT
● The Bundesbank opposes additional emergency funding for Greece | RTE
Recent unemployment claims in the US showed a decline last week, according to a report from the Labor Department, which delivered an unexpected positive surprise as expectations had been for a slight increase. This news provides a glimmer of hope that the recent economic setbacks are merely a temporary phase rather than an indication of deeper issues brewing ahead.
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