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Friday, December 12, 2014

Retail sales soared in November, up 0.7 percent, significantly higher than expected. All retail sectors showed positive increases with the exception of gas of course - oil prices have plummeted 40 percent since June. It’s estimated that these lower gas prices translate into an average tax cut of $1,100 per family, which will drive disposable spending on other retail goods. Consumer sentiment also surprised on the upside rising in December to mark the highest reading since January 2007 with a reading of 93.8. Worries that the low energy prices will derail the energy sector and the U.S. economy are exaggerated as energy investment accounts for only about 1 percent of U.S. growth, while consumer spending makes up 70 percent. Please follow U.S. GDP and its components on page 62 of the Global Perspectives book.

Friday, December 12, 2014

{slide:Real GDP (Q/Q):latest:left}Retail sales soared in November, up 0.7 percent, significantly higher than expected. All retail sectors showed positive increases with the exception of gas of course - oil prices have plummeted 40 percent since June. It’s estimated that these lower gas prices translate into an average tax cut of $1,100 per family, which will drive disposable spending on other retail goods. Consumer sentiment also surprised on the upside rising in December to mark the highest reading since January 2007 with a reading of 93.8. Worries that the low energy prices will derail the energy sector and the U.S. economy are exaggerated as energy investment accounts for only about 1 percent of U.S. growth, while consumer spending makes up 70 percent. Please follow of the Global Perspectives book.

Thursday, December 11, 2014

Anxious investors, spooked by falling oil prices, uncertain global growth and robust stock valuations, abandoned risky assets in favor of government bonds in a “back to the future” move reminiscent of previous flights to quality. The Dow dropped over 1.5 percent, and U.S. oil prices fell below $61/barrel, a five-year low, as the year-to-date decline approached 40 percent. Nevertheless, we see the move from “high oil” to “low oil” as a secular trend that has been building for years. Investors should recognize that resilient markets have shaken off other destabilizing events from time to time and not forsake an effectively diversified portfolio that balances return and risk. Please follow Oil Price and Intensity on page 66 of the Global Perspectives book.

Wednesday, December 10, 2014

Chinese stocks recorded their biggest loss since 2009 — down 5.4 percent — after the government took steps to rein in lending policies, part of a plan expected to reduce growth to 7 percent (from 7.5 percent). Yet U.S. stocks held their ground for the day yesterday after early losses. Domestic growth remains robust, and even the U.S. Congress seems determined to avoid any unwelcome budget histrionics as lawmakers appear close to agreement on a $1.1 trillion spending level for the remainder of the fiscal year. Follow global risks such as China’s Hard Landing on page 19 of the Global Perspectives book.

Tuesday, December 9, 2014

Too much of a good thing is disruptive to global markets. A surging dollar on top of an oil glut has sent oil prices crashing — down over 40 percent since June — along with emerging market currencies, which plunged to a new low against the US dollar on Monday. While this would appear to be great news for consumers, it is anathema to oil producing nations, the global energy sector —and the prices of energy stocks — and the nascent capital expenditure cycle driven by mammoth oil and gas projects around the world. The market is adjusting to a more balanced view of the stronger dollar and its impact. Follow Major Currency trends on page 51 of the Global Perspectives book.

Friday, December 5, 2014

Payroll report surge stuns the street. The U.S. Bureau of Labor Statistics reported today, “Total nonfarm payroll employment increased by 321,000 in November, and the unemployment rate was unchanged at 5.8 percent. Job gains were widespread.” September payroll was revised from +256,000 to +271,000, and the change for October was revised from +214,000 to +243,000. With these revisions, employment gains in September and October combined were 44,000 more than previously reported. The consumer, 70 percent of the economy, seems to be riding a virtuous wave on this employment report; oil has dropped by 40 percent since June; hourly earnings doubled expectations with a 0.4 percent today; and housing news continues to be good as mortgage rates stay low. So, yes I think Santa Clause is coming to town. Please see Employment Payroll report on page 56 of the Global Perspectives book.

Thursday, December 4, 2014

In Europe, despite no action at today’s European Central Bank (ECB) meeting, president Draghi sent hints that Quantitative Easing will start next year. The ECB’s macro-economic outlook has turned ugly. The view on growth has declined in the last three months from 1.6 percent for 2015 (in September) to only 1.0 percent today, a huge downward revision. Draghi repeatedly used lower inflation forecasts and falling energy prices as the main reasons for concern. Meanwhile, in the U.S. the good news keeps coming: Business surveys point to robust economic activity, and any labor market weakness is likely to be temporary and possibly due to bad weather. Follow Global Monetary Policy trends on page 45 of the Global Perspectives book.

Wednesday, December 3, 2014

Manufacturing in the eurozone slowed more sharply than previously estimated in November. This brought the PMI reading down to 51.1, pushing the euro to a 27 month low vs. the dollar and increasing the possibility of QE in the eurozone. The dollar has surged to a 5.5 year high against a basket of major currencies and this strong dollar is helping to keep bond yields low. Low interest rates are good news for the housing market which has been plowing forward but at a slower rate. Mortgage applications fell last week but fixed 30-year mortgage rates averaged 4.08 percent in the week, the lowest level since May 2013. The slower rate of price increases and the strengthening labor market will also keep housing on a steady path forward. Please follow the dollar index on page 51 of the Global Perspectives book.

Tuesday, December 2, 2014

Black Friday brick and mortar sales were characterized as sluggish but Cyber Monday sales surged highlighting the impact technology has had on the consumer. Bargain hunters decided to forgo long lines and sharp elbows in favor of shopping from the comfort of their own homes. The preliminary numbers show sales of $2.65 billion on Cyber Monday, a 16 percent increase over last year. The savings from falling gas prices is starting to kick in. So far the decline has provided the equivalent of a $75 billion tax cut for U.S. households, according to Goldman Sachs. This could translate to a $1,100 annual benefit for a typical US family. Meanwhile, on the manufacturing front, U.S. manufacturers expanded at a slightly slower but still robust pace in November and the ISM Index registered a 58.7 percent reading last month. Notably new orders expanded again to reach 66 percent and the backlog of orders rose to its highest level since April. This vigorous pace in manufacturing and the strong start to holiday sales bode well for fourth quarter GDP. Please follow retail sales on page 13 of the Global Perspectives book.

Wednesday, November 26, 2014

What a difference a day makes. Yesterday GDP surprised big on the upside. Lots of data was released today and not all of it was good. Durable goods orders were up only 0.4 percent in October, a weak start to the quarter. In particular, orders for commercial products and business investment dropped which may prove to be a drag on 4Q GDP. The consumer also started the quarter weaker than expected. Consumer spending climbed 0.2 percent in October, as did personal income; not the strong consumer rebound that was anticipated. Additionally, weekly new jobless claims spiked to 313K. This is the first time the number of newly unemployed exceeded 300K since the beginning of September. It is no wonder the Conference Board's index of consumer confidence plunged to 88.7 in November from 94.1 the prior month. On the home front pending home sales were down 1.1 percent from last month and new home sales increased by 0.7 percent, a softer increase than expected. Despite all of the weak data today one day does not make a trend. Please follow durable goods on page 61 of the Global Perspectives Book.

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