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Thursday, March 12, 2015

Still waiting. Still waiting for the consumer to pick up the pace of spending. It didn’t happen in February. Retail sales were expected to rebound but actually declined 0.6 percent last month (the third straight month of declines) and the year over year increase is a paltry 1.7 percent. Internet sales were up 2.2 percent in February and 8.6 percent year-over-year, lending credibility to the harsh winter weather/dog ate my homework excuse. The consumer just can’t seem to believe that lower gas prices are not a temporary fluke. However, increasing supplies, slower global demand, and a strong dollar are all conspiring to keep oil prices well below the high prices we became familiar with in the last few years. In addition, the latest jobs report shows that job openings climbed 2.5 percent in January to reach 5 million, the highest level since 2001. Good jobs market, low gas prices - get to the mall. March retail sales should reverse this trend but the subdued consumer spending thus far will hinder the GDP print in Q1. Please follow retail sales on page 13 of the Voya Global Perspectives™ book.

Wednesday, March 11, 2015

China’s latest economic data is not good. Industrial production increased at its slowest pace since 2008, rising 6.8 percent in the first two months of the year compared with a year ago. Retail sales also slowed, increasing 10.7 percent in the first two months of 2015 compared to 11.9 percent in December. The downturn in the overheated Chinese housing market is apparently taking its toll on domestic demand. Chinese officials lowered the official GDP growth target for this year to about 7 percent, the slowest expansion in a 25 years. The IMF forecasts this rate will be 6.8 percent in 2015 and 6.5 percent in 2016 – lower than India’s projected growth rate. Despite these indications of a slowdown, Chinese markets are rallying. Investors should realize by now that bad news is often good news because it means more stimulus. China has already cut rates twice this year but the latest round of economic data suggests more aggressive policy action is forthcoming to stem the downturn. China is a key piece in the economic growth puzzle so please keep an eye on China’s economic metrics on page 43 of the Voya Global Perspectives™ book.

Tuesday, March 10, 2015

Weak global rates are working to push U.S. rates down. But, on the flip side, a surging dollar and ever improving U.S. economy have significantly moved rates up from the ultra-low rates we saw just a month ago, thereby pushing prices down. The U.S. 10-Year treasury yield was 1.67 percent at the start of February; now it is 2.12 percent. March has been negative so far across the board for both stocks and bonds. Investors may be tempted to head for the hills of cash. But, hold your horses. Yes, the strong dollar is causing issues with U.S corporate earnings estimates and in many emerging markets. Yes, the Fed may remove the word “patient” from their rhetoric. But the U.S. economy and the U.S. job market are looking better than they have since the recession. And global central banks are fully committed to keeping the global liquidity party going. First quarter earnings reports set to begin in mid-April will be the true litmus test of the market’s future direction. Keep calm and stay diversified. Please follow U.S. Treasury rates on page 30 of the Voya Global Perspectives™ book.

Friday, March 6, 2015

The pile of reasons for the Fed to delay raising rates is getting thinner. Today’s nonfarm payrolls report showed that the economy added 295K jobs to the economy in February, the twelfth straight month above 200K. The unemployment rate dropped to 5.5% the lowest reading in almost 7 years. Wage growth remains sluggish with hourly wages up only .1% and the labor participation rate was down slightly giving the Fed some wiggle room if desired. The last several months of strong payroll numbers have resulted in short term negative market reactions. Well, boo hoo to the market crybabies. Robust job creation is indicative of positive business sentiment and more jobs and lower unemployment rates will undoubtedly put upward pressure on wages, good news for workers and consumers. The real economy is getting stronger and that is what really matters. Please see the latest Global Perspectives monthly market commentary, “Market Whipsaw Sheared Bears Like Sheep in February”.

Wednesday, March 4, 2015

China cut lending rates again to help stimulate their slowing economy, as did India which surprised markets with their second rate cut this year. A steep drop in inflation due to lower oil prices – in addition to the growth concerns – was cited as a reason for cutting rates. Annual inflation rates in developed economies are at their lowest point since the recession and underscore that the threat of deflation has not been extinguished. Inflation and employment are the two key metrics the Fed will be looking at when determining when to raise rates in the U.S. Ultra low inflation is actually detrimental to an economy because it suppresses consumer spending and compounds household debt burdens. Please follow inflation on page 64 of the Voya Global Perspectives™ book.

Tuesday, March 3, 2015

Auto sales are up in February but are coming in shy of expectations. Surely the harsh winter weather is a factor, especially in the Northeast. But consumers generally still don’t believe the lower oil prices are anything more than a temporary blip and, as a result, have yet to seriously ramp up their spending. Spending on energy was down 18 percent in January and consumer spending was down 0.2 percent overall. Consumers used their energy windfall to boost their savings accounts instead, and the savings rate rose from 5 percent to 5.5 percent, the highest since 2012. The current low oil scenario is not a blip. The blip in energy prices was the plus $100/barrel oil consumers have been living with the last few years. More supply and less demand have been working to erode energy prices for quite some time. Please see the Voya Global Perspectives™ energy whitepaper written in 2012, outlining the case for lower oil prices.

Friday, February 27, 2015

Fourth quarter GDP was revised down from 2.6 percent to a 2.2 percent. Weak exports and lower than initially reported inventory stocking, were the reasons for the downward revision. This shouldn’t come as a surprise given the strength of the U.S. dollar. But, before investors throw their arms up in despair at the tepid rate of U.S. growth, they should take a look at some of the bright spots. Consumer spending increased 4.2 percent. This is indeed solid evidence that the, game-changing 70 perecnt of the economy, consumer remains resilient and that cheap gas will continue to bolster spending in 2015. In addition, Capex (capital expenditures) were significantly bumped up to 4.8 percent despite the fact that any Capex related to the oil sector is under pressure. Capital spending is crucial because it begets more jobs and hence more consumer spending. Overall GDP for 2014 ran about 2.4 percent; higher than 2.2 percent in 2013 and 2.3 percent in 2012, so we’ll take it. Please follow GDP on page 61 of the Voya Global Perspectives™ book.

Thursday, February 26, 2015

Durable goods orders rose 2.8 percent in January, the biggest increase in six months. Business spending (less the volatile defense and transportation sectors) was also a positive surprise, increasing 0.6 percent after four months of decline. In other important economic news, January posted the third straight month of consumer price drops – primarily due to falling gasoline prices. Core CPI was down 0.1 percent year-over-year. Investors should not worry too much about deflation. A decline in energy prices is the good type of deflation and, as gas prices stabilize, inflation should gradually move towards the Fed’s target. So this report is unlikely to deter the Fed and its rate hike time table. Please follow inflation on page 64 of the Voya Global Perspectives™ book.

Wednesday, February 25, 2015

A recent deal gives Greece a four month $273 billion extension. However, Greece is certainly not out of the woods yet. Creditors have serious doubts that Greece will be able to adhere to the terms of the bailout but European markets don’t look too concerned. The euro zone has been in rally mode this year despite the Greek drama. The MSCI EAFE index is up double (6.2 percent as of 2/24,) compared to the S&P 500 (up 3.1 percent as of 2/24,) so far this year and many of the major European stock indices are at all-time highs. And, why not? The ECB is has significantly ramped up their stimulus efforts and the euro is down to trading at 1.14/$, boosting export driven economies like Germany. Top it off with cheaper oil and the equity markets are happy to join the party. Keep your eye on the European stock markets on page 39 of the Voya Global Perspectives™ book.

Tuesday, February 24, 2015

The market is dissecting every word of Fed Chair Janet Yellen’s testimony today to determine when we may or may not see the inevitable first rate hike. The labor market is key to the decision and although job growth has been strong, the sluggish wage growth and low labor participation rate are monkey wrenches the Fed has in its pocket if needed. Yellen also mentioned the slow recovery in the housing market as a potential reason to hold off on rate movements. Today the Case-Shiller home price index came in a little better than expected for December with prices ticking up 4.5 percent year-over-year in the 20 metro city areas. Bear in mind, this is more than twice the rate of inflation. However, home sales have disappointed as of late. Existing home sales fell 4.9 percent to 4.82 million in January, a larger than forecasted decline. Despite no significant news in Yellen’s testimony, equity markets seem to like the somewhat dovish tone with many indices reaching multi-year intraday highs. Please see the latest Voya Global Perspectives™ comments on interest rates in "Wall of Worry Punishes Market in January."


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