LSA Connect

Economic Update 5-23-2016

• Economic data on the manufacturing side was lackluster, with indexes contracting again.  Inflation was again generally contained, and housing came in a bit better than expected, while the FOMC minutes from April surprised somewhat—being more biased towards tightening than some observers first thought.

• Equity markets in the U.S. and developed foreign markets moved slightly higher on the week generally as investors absorbed the more hawkish set of Fed minutes, while emerging markets lost ground.  Bonds declined as interest rates ticked up along the yield curve.  Commodities gained with a continued recovery in oil prices.

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Economic Update 5-16-2016

• In a slow week for economic data, retail sales gained more than expected, while consumer sentiment also came in showing strength.  Jobless claims were the sole weak spot, but this may have been the result of one-off seasonal adjustments.

• Stock markets fell across the globe along with poor retail earnings, while bonds gained with interest rates ticking downward.  Due to a variety of cross-currents, crude oil prices rose again, into the upper $40’s/barrel.

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Economic Update 4-25-2016

• Economic data for the week was focused on several housing stats, including higher home prices, existing home sales but lower starts and building permits.  Jobless claims fell to multi-decade lows, which was good news for the labor market.

• Stocks rose on the week with decent earnings reports and higher energy prices. Bonds lagged due to higher interest rates.

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Fed Note:

At the beginning of the year, the March Fed meeting was expected to be one of the four meetings in which there was likely to be an announced rate increase.  However, as economic conditions have slowed, credit markets working through stress and global conditions continuing to experience a lack of positive catalysts, probabilities for a move this month fell dramatically to near zero.  These guesses turned out to be correct, as nothing was done.  Interestingly, Kansas City Fed President Esther George dissented—wanting a rate increase of a quarter percent today.

The committee described the economy growing at a ‘moderate’ pace, noting improvement in household spending and housing, as well as strength in labor, but softer business fixed investment and exports.  They did note that ‘global economic global and financial developments continue to pose risks’.

Additionally, the FOMC signaled future intentions, by reducing the number of implied expected increases this year from four to two, lowering the bar for action this year; estimates for GDP growth and inflation were also revised downward for this year.  Markets have been ahead of the curve, continuing to price in mixed probabilities—currently 50/50 for a June change.  The reality continues to look data-dependent, as the Fed has been hoping for a better domestic and global geopolitical environment as a backdrop for further tightening.

The key metrics as they look today:

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