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Friday, September 8, 2017

Are you kidding me? My friend’s family in Houston is struggling with a disaster; My neighbor’s Dad is in Key West bracing for impact; and what about the thousands of Americans left destitute with no means to leave Houston or southern Florida? The press is concerned about House Speaker’s Paul Ryan’s feelings or whether U.S. Senate Minority Leader Chuck Schumer should be teaming up with President Trump to quickly give aid to the Americans slammed by dual Hurricane’s Harvey and Irma? To paraphrase a quote from Helen Thomas - “Hurricanes Make Strange Bedfellows.” Well then, give it up for Harvey and Irma for compelling Washington into bipartisanship. We are the richest country in the world, the forty-five countries of the OECD (developed economies) are all, yes all, experiencing positive economic growth – a rare event indeed and if today you woke up in a warm bed and got the kids off to school, you are lucky, and if your biggest concerns today are tax cuts or Russia, you have issues. God bless those in the path of Irma and those struggling in the wake of Harvey. My recommendation today is to donate to the Red Cross.

Thursday, September 7, 2017
China and India are growing rapidly, and China is second only to the U.S. in total economic output, while Germany’s export-driven economy is the runaway euro zone leader.

The ECB left policy rates unchanged and declined to expand on details regarding the tapering the euro zone’s quantitative easing program. Tapering seems inevitable. The euro zone economy is getting stronger. In fact, the ECB raised 2017 GDP forecasts to 2.2% - the fastest since 2007. Although inflation is still weak, deflation is no longer looming large and corporate profits are surging. European corporate profits grew 18% on Q2 and are on track for 20% growth in 2017 (MSCI Europe Index). However, ECB President Mario Draghi is tiptoeing through the tulips when it comes to monetary tightening because the euro has also been surging, up 14% YTD against the US dollar. A rising euro is a headwind to exporting nations like Germany where 37% of their GDP is attributable to exports. The below target inflation readings and slack in the employment market give Draghi some breathing room for now. Please keep an eye on international economics including many euro economies on page 55 of the Voya Global Perspectives™ Book. Our thoughts and prayers are with everyone bracing for Hurricane Irma.

Tip: To combat scarcity and price gouging of bottled water, fill zip lock bags with tap water and stock them in the freezer.

Wednesday, September 6, 2017

Despite jitters from North Korea and a poor August from President Trump, the global economic rebound just keeps on gathering pace. The August PMI reports are essentially uniformly positive, many outperforming expectations and/or hitting multi-year highs, and well above August 2017 results. Even with the unnerving reports from North Korea, the RoK picked up some momentum and is basically at 50. India enjoyed a major bounce back from the 47.9 recorded in July, to 51.2. Key for global growth, the U.S. hit 58.8 (a five-year high), Germany remained at 59, the Eurozone and UK both (basically) at 57.

Beyond the PMI report, economic signs from the Eurozone continue positive. As in the U.S., soft-data are moving higher. EU Economic Sentiment continues the sharp rise over the past year, reaching 111.9 from 103 a year ago as did the Euro Area Business Confidence Index. Industrial confidence hit a six year high, with consumer confidence holding a 10-year high. The Sentix Investor Confidence index is holding at a 10 year high.

Which clearly brings the ECB into play. CPI inflation in August hit 1.5% YoY, down from 2% in February. Core CPI is ticking higher (to 1.2%), but slowly. The strength of the EURO (+9% on a TWI basis in 2017) and weakness of commodities (oil down 20% YTD in Euro terms) militate against tightening just yet. And nota bene, using the OECD measure of the Eurozone NAIRU, there is still a bit of slack in the labor market (9.1% actual vs. NAIRU estimate of 8.6). Look for just modes stirrings towards less accommodation on Thursday when the Governing Council meets, under a strong Euro. - Special Guest Blogger: Tim Kearney

Friday, September 1, 2017
Total payrolls, including all non-farm employment, have inched steadily upward with private job creation leading the way.

The market was positive in August despite the geopolitical turmoil, Washington drama and a spike in volatility. Meanwhile, today’s non-farm payrolls report was below consensus showing only 156k jobs were added in August. June and July were also revised downward. Manufacturing and construction jobs led in job gains, the labor participation rate held steady at 62.9%, wages increased by .1% and the unemployment rate ticked up to 4.4%. As a result, the U.S. dollar and treasury yields weakened slightly. Despite the headline disappointment, this report is actually an affirmation that the economy continues to move forward. It is estimated that the economy needs only 80K jobs to hold steady so even though the jobs number was below consensus it is still supportive of economic improvement. In addition, today,s U.S. manufacturing PMI reading of 58.8 is a six year high. But even more importantly, the global economy is on the same page. The August Eurozone manufacturing numbers accelerated to the highest levels since 2011. It would be nice if Washington passed some pro-growth policies, but it is significantly more important that the global economy is broadly expanding. Please watch job creation on page 62 of the Voya Global Perspectives™ Book.

Thursday, August 31, 2017
Returns for a globally diversified strategy over the last 10 years refute the notion of a “lost decade”.

“Cadillac Surges – in China.” Yup, another WSJ headline that anecdotally tells a powerful story. In today’s page one Wall Street Journal article, Mike Colias points out that “Cadillac sales are growing at the fastest clip since the Reagan Administration” and “By tripling its China sales in five years, Cadillac has vaulted past Lexus, Land Rover and Volvo to become the country’s No. 4 luxury player according to research firm LMC Automotive.” My favorite sentence “Shanghai entrepreneur Zhenyu He sees Cadillacs as a symbol of American grandeur.” It turns out that this is showing up in the extraordinary strong contribution of globally tilted companies to the S&P 500 earnings growth with their 14% growth rate compared to the 8.5% growth rate of domestic only companies. But a better play might be to actually invest in these Emerging Markets directly. It may surprise investors that are thrilled with the +10% plus return in the S&P500, that they have potentially been missing out on the enormous +28% plus return that has been achieved by Emerging Market investors. The rotation that actually began last year toward overseas tends to have long legs. It is never too late to move toward broadly global diversification that can increase return and reduce risk. Please see page 4 of the Voya Global Perspectives™ Book for an ‘Effectively Diversified” global portfolio.

Wednesday, August 30, 2017

The second print of Q2 GDP today showed that the U.S. economy grew at 3.0%, rather than the 2.6% originally reported. The revised estimate was buoyed mostly by stronger consumer spending, while business investment also contributed. In addition to the revision of headline growth, the report showed corporate profits rose 1.3% QoQ in 2Q, after falling 2.1% last quarter. This supports the narrative of increased momentum in the U.S. economy for the second-half of 2017. The market implied probability of an interest rate hike in December moved up to 33% from 30% on the news, as investors speculate whether stronger growth could allow the Fed to look through below-target inflation when considering the next hike. Looking ahead to economic releases later this week, economists estimate that 180k jobs were added in August, continuing the strong trend in hiring we have seen, and that the unemployment rate remains at 4.3%. For more on GDP, please see page 69 of the Global Perspectives™ Book. - Special Guest Blogger: Pavel Dekhman

Tuesday, August 29, 2017

The devastating effects of Hurricane Harvey continue to impact Texas and Louisiana, closing the port of Houston - the second busiest in the nation - and throwing a monkey wrench into the supply chain for many goods including oil and automobiles. It is estimated that auto sales will be dinged by about 200K units and it is still unclear how oil will be impacted given that 10 of Texas’s 25 refineries remain offline for now. A snap back can be expected as business investment, auto sales and construction spending will surge to repair and replace the damage, but that is little consolation to residents watching water levels continue to rise. Heavy hearts were then jolted by a North Korean missile launch over Japan, increasing geopolitical tension and creating destabilizing uncertainty. Investors are flocking to safe havens like U.S. treasury bonds and, accordingly, prices jumped up, driving yields down to late 2016 lows. Gold, another perceived refuge, is also up 14% this year. Geopolitical tension rarely has long term lasting impacts on the market especially when fundamentals remain strong, but holding bonds can help investors ride out the short term storm. Our thoughts and prayers are with everyone impacted by Hurricane Harvey. Please review the Voya Global Perspectives™ Weekly for all of the latest market statistics.

Friday, August 25, 2017
Euro zone growth has teetered close to zero for three years. Meager growth coupled with ultra low inflation has sparked repeated rounds of European Central Bank stimulus.

Policy makers are looking to make Jackson Hole relatively uncontroversial. Janet Yellen’s speech this morning defended financial regulation reform following the financial crisis. An EM and DM risk rally followed while Treasury yields declined as the first round of event volatility came and went.
The media reports that Draghi’s address at 3pm EST will not break new ground on tapering. The ECB is likely to proceed with caution, an impression made by the Minutes of the July meeting. They showed policy makers worried about the Euro’s gains in anticipation of tapering. Advancing market expectations would cause another rush into the currency, damping reflation prospects, and lead to an outperformance of European assets on less stable capital flows.
On the macro side, the global fundamental backdrop remains firm with China expected to be a bulwark of growth momentum well into 2018. The 5% rise in industrial metals this month signals a strong PMI reading for the US in August and underlines support for higher yields.
This is only one dimension currently battling the market’s view of low inflation and a restrained Fed. We argue that core CPI will return to monthly readings of 0.2% in subsequent months, but we acknowledge that anomalies in the data need to stop being a rolling series of price inflation blackouts to avoid a more structural explanation to lower CPI. Follow the impact of Central Bank actions on global markets, rates, and currencies on page 50 of the Voya Global Perspectives™ Book.
- Special Guest Blogger: Guy Petcho

Thursday, August 24, 2017

Sometimes you have to take a victory lap - while also trying not to get hurt by patting yourself on the back with our seemingly optimistic 2017 forecast of 3.5% Global GDP Growth projected last December. Today’s Wall Street Journal front page article, “Growth Takes Off Around the World,” states “all 45 countries tracked by the OECD are on track to grow this year,” while in July, the IMF “projected global economic output would grow by 3.5% this year.” But my favorite couple sentences were “In the past 50 years, simultaneous growth among all the OECD-tracked countries has been rare. In addition to happening last decade, it has only happened in the late 1980s, and for a few years before the 1973 oil crisis.” So, stop worrying so much about U.S. politics and enjoy the ride in U.S. corporate earnings - driven by a global rebound - and is the true driver of equity markets. Please see the graph below from December’s “2017 Forecast – A New Path: The Growth and Reflation Trade”.

Wednesday, August 23, 2017
The U.S. manufacturing report has rebounded after a month of contraction; the latest euro zone and emerging markets reports also indicate expansion.

Economic data has been - on the whole - a bit better than expectations. A rebound in retail sales was followed by strong print for industrial production, up 0.2% in July, and a 2.2% YoY rate, which is the strongest reading since early 2015. The preliminary August manufacturing PMI dipped slightly from July, however still firmly in expansionary territory, while the services component improved. Other survey measures remain very strong, led by the University of Michigan Consumer Sentiment Index improving to an almost 10-year high, and the Philadelphia Fed Business Outlook Survey and Richmond Fed Manufacturing Index both registering gains. The Atlanta Federal Reserve NowCast is currently showing a robust 3.9% estimate for Q3 GDP Growth. Looking ahead, all ears will be tuned into Fed Chair Yellen’s speech at Jackson Hole this Friday as she speaks on the topic of financial stability. For more on global manufacturing and services, please see page 8 of the Global Perspectives™ Book. - Special Guest Blogger: Pavel Dekhman

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