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Wednesday, August 2, 2017

As was widely expected, the FOMC left interest rates unchanged at its July meeting. My take away is that the FOMC wants to raise rates, wants to normalize, and expects that conditions will permit it, but will not jump the gun. So the outlook remains dependent on fiscal policy. Thus far, the Administration has deregulated up a storm, with 16 regulations eliminated for every one promulgated. Tax policy principles are beginning to be formulated (which would’ve been a good idea for health care reform). There is pressure for the Congress to put it on Trump’s desk by Thanksgiving – if not sooner. Principles are not policy, but the ideas are reasonable and good for the economy and markets: a lower tax rate for small business, doubling the standard deduction, capital expensing, repatriation of foreign holdings, and lower tax rates for businesses.

Meanwhile the latest ADP payroll report shows 178K private sector jobs were added in July, a little shy of expectations but in line with the solid averages posted over the last year.

Please follow the latest Voya Global Perspectives comments on the market by reading the recent MarketWatch article.

Tuesday, August 1, 2017
The U.S. manufacturing report has rebounded after a month of contraction; the latest euro zone and emerging markets reports also indicate expansion.

We open the new month with a reasonably good report for July’s ISM Manufacturing report of 56.3 along in line with other positive regional manufacturing reports. This adds to the modestly good economic data we saw last week including the Q2 GDP at 2.6%, Consumer Confidence near a 16-year high, along with a below expected Employment Cost Index in a nod to the continued low inflation readings. Meanwhile, all eyes will be on Friday’s July Nonfarm Payrolls report that is expected to be at 180K. Please see Voya Global Perspectives Manufacturing Trends on page 8 of the Voya Global Perspectives™ Book and review this week’s Weekly Market Update for global market performance year to date.

Friday, July 28, 2017

Second quarter GDP growth came in at 2.6% this morning, just shy of consensus estimates at 2.7%. While towering over last quarter’s barely 1% growth, this morning’s print is less of an acceleration, but rather a confirmation that the economy is growing at a steady pace. Consumer spending remains the main driver of growth, while a weaker dollar also helped domestic exports contribute to growth this quarter. Bond yields fell after the news, and the dollar continued its recent trend lower. Please see page 12 of the Global Perspectives™ Book for more on global manufacturing and services. Special Guest Blogger: Pavel Dekhman

Thursday, July 27, 2017
Weekly fund flows continued their mixed trend; cumulative equity flows, despite a multi year bull market, have yet to turn positive.

Today we note a double contrary buy signal. It is common to regard retail investors’ timing as a contrarian signal, that is they tend to “buy high and sell low” instead of the recommended opposite “buy low and sell high”. But, hedge funds — which have had a horrific record over the past few years — are now following retail investors’ lead by bailing out of equities just as earnings are accelerating and markets continue to march forward. Reports on hedge funds and mutual fund flows show that stocks are being sold and bonds are being bought. This is occurring even as corporate earnings are surging, up 14% in the first quarter and likely to grow at a double digit pace in the second quarter as well. We can only think that politics is unsettling investors. This is not the time to be doubling down on President Trump’s perplexing tweets or the incessant media drama by making irrational investment decisions. Instead, it’s advisable to focus on the fundamentals such as today’s report of Durable Goods Orders that leaped to a 3-year high, raising expectations for GDP growth. Please review "Mutual Fund Flows" on page 79 of the Voya Global Perspectives™ Book.

Wednesday, July 26, 2017

The FOMC left interest rates unchanged at this month’s meeting as expected. In the coming week, there will be much scrutinizing the exact language and speeches. I read the July statement as keeping markets on notice that the Fed has a tightening bias but remains - on all fronts - data dependent. Starting from the conclusion, the Committee sees the risks to the outlook as ‘balanced’, then puts the spotlight on inflation risks which they are ‘monitoring closely’. Rather than note transitory effects keeping inflation down, they simply accept inflation may be low in the short-run but will move towards the objective over the medium term. On growth, they note that the labor market continues to ‘strengthen’ and given their expectation for ‘moderate’ growth, then that labor market conditions will ‘strengthen further’. Assuming they continue to believe that unemployment is through the natural rate, pressure will build on them to keep tightening. In a long-winded paragraph, they signal that the timing on future rate hikes will be data dependent: on the labor market (they expect it to tighten), inflation pressures (they expect them to rise) and inflation expectations (so far stable). As for ‘normalization’, the FOMC expects to begin that process ‘relatively soon’, but only if the economy develops ‘as expected’. Not sure how long ‘relatively soon’ will prove to be (September?), but it seems the FOMC wants to raise rates, wants to normalize, expects that conditions will permit it, but will not jump the gun. I’d read it as good for risk assets and the economy, pressuring for the exchange rate. That combination should be good for EM assets. As for bonds, I expect yields will move higher over time. Please see Voya Global Perspectives™ Weekly. - Special Guest Blogger: Tim Kearney

Tuesday, July 25, 2017

The markets are not waiting to see the whites of pro-growth economic policy’s eyes; it once again is hitting new record highs. The markets are discounting mechanism anticipating change, but a few things are crystal clear now. First, the likelihood of President Trump “raising” taxes is nil; the likelihood of increasing meaningful regulation is nil; the likelihood of pro-growth economic policies eventually getting enacted is high. These probabilities are “stealthily” making their way into market pricing, as in higher. Also, the global economy is growing led by the positive surprises in Europe, and additionally China, with its strong June quarter of 6.9% GDP growth rate. It is showing up on rising commodities in industrial metals such as copper and crude oil, also in accelerating earnings growth in the S&P 500. Please see the Voya Global Perspectives™ Midyear Update.

Friday, July 21, 2017
The excess of M2 over M1 money supply data shows record levels of cash on the sidelines, while equity mutual fund flows show extreme swings that highlight investors’ reactions to stock market performance.

According to the latest statistics from the BLS (Bureau of Labor Statistics), almost 1/5 of Americans aged 70-74 are still in the workforce. Many cite not saving enough for retirement as the primary reason for working. However, living longer in general, rising and uncertain healthcare costs, and the desire to keep active and alert also contribute to their participation in the workforce. Unfortunately, older workers often face hurdles to finding employment such as a skills mismatch or health issues. Saving early and consistently during your working years is the key to keeping your options open later on. Participation in a globally diversified portfolio can help build wealth. Cash, on the other hand, provides a negative real rate of return after inflation. There is currently almost $10 trillion in cash on the sidelines. Investors who are fearful of the market or confused about how to invest may be waiting for the all-clear signal that will never come. Asset allocation strategies such as target date portfolios and age-based 529 savings plans are just two ways to provide investors with no hassle instant diversified market exposure. Please watch the growth of cash on the sidelines on page 85 of the Voya Global Perspectives™ book.

Thursday, July 20, 2017
U.S. Leading Indicators have been consistently positive — in fact, for 17 of the last 24 months.

It was the ECB’s turn to sound dovish today. ECB’s President Mario Draghi indicated no changes in interest rates and, more importantly, no changes to the QE easing bias. While the economic recovery momentum sails on in the Eurozone, inflation and upward wage pressures are lagging - keeping the ECB on hold for now. Meanwhile, U.S. leading economic indicators were up .6%, the best reading of the year, housing starts rebounded up 8.3% in June and initial jobless claims plunged 15K last week. Some of the regional manufacturing indices dialed back a bit. The Philly Fed manufacturing index fell to 19.5 from 27.6 although still firmly in expansion territory. Company earnings are enjoying this global synchronized expansion scenario and basking in the glow of all-time equity market highs. Investors should enjoy the sunshine too. Just don’t forget the sunscreen (bonds) because corrections are part of normal markets and its always prudent to be prepared. Please see page 67 of the Global Perspectives™ Book.

Wednesday, July 19, 2017

Our Eurozone activity index, which is designed to track real activity in the Eurozone on a higher frequency basis than officially reported GDP, continues to imply improving economic activity in the Eurozone. As of June 30, the value of the index was 3.8 vs 3.6 on May 31. This level of economic activity is consistent with pre-crisis levels. The index combines hard data (such as unemployment and industrial production) as well as soft data (such as EU consumer and business confidence measures). The most recent increase in estimated activity is due to improvements in the underlying PMI manufacturing from 57 to 57.4 and PMI services from 74 to 75, but also business confidence measures in Italy, and the Euro-area in general along with improvements in the German IFO survey. Finally, Euro-area unemployment, even though relatively high, continues to decrease. Please see page 8 of the Global Perspectives™ Book. for more on global manufacturing and services. - Special Guest Blogger: Elias Belessakos

Tuesday, July 18, 2017
The strength of the dollar has moderated, although the British Pound remains weak post-Brexit.

As we head into the thick of earnings season, you may hear companies reference the strong dollar as a headwind to their global sales. The dollar did indeed strengthen in 2016, but its relative advantage has waned as other global economies are moving forward - some at a faster pace than the U.S. - global central bankers are sounding more hawkish, and the latest Washington health care policy inaction hinders the anticipated pro-growth agenda. The dollar is down 1.4% this week and the DXY index sunk to its lowest level in 10 months. While this may help boost earnings reports in the short term, a weak dollar is indicative of lower economic growth and has negative long term implications for global investing in U.S. assets. So be careful what you wish for. By the way, earnings seem to be doing just fine with the forecasted Q2 growth rate moving up close to 7% in the last few days. Please watch the U.S. dollar on page 53 of Voya Global Perspectives™ book.


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