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Tuesday, March 24, 2015

The violent rise in the dollar has snapped back to “normal,” or what it was on average in the 15-year period ending in 2001. The Euro’s precipitous fall has been back to “normal,” or near where it was issued in 1999. The world is shocked, simply shocked, by the collapse in oil prices to back to – yes, you guessed right – “normal,” or the average price for the past 30 years. What is not normal are the low rates and low inflation, although we got a positive reading on CPI this morning. What is also not normal is the surprisingly low volatility, closer to single digits than its normal 20-handle. But the Fed is moving ever closer to normalizing rates and this will likely normalize volatility as well . The only wailing and gnashing of teeth is by the media that is struggling to make a story out of normal. The markets will continue to normalize and this likely means higher volatility but a more sanguine and sustainable economic backdrop. Please see Voya Global Perspectives® pages 48, 66 and 25 for currencies, oil prices, and volatility, respectively.

Wednesday, March 18, 2015

All eyes are on the Fed announcement today at 2 p.m. EDT. We forecast that the word "patient" gets removed, which is hawkish, but will be balanced by dovish outlook on the path of rates. Fed Chair Yellen has demonstrated her market savvy since she was appointed Fed Chair and this will be no different. Those expecting a "Fed Policy Mistake" will miss out on this bull market run that shows no signs of abating. Please see the Voya Global Perspectives ™ latest monthly commentary on the dangers of market whipsaw and "gaming diversification."

Tuesday, March 17, 2015

Will they or won’t they? This week is all about the Fed and whether or not they will remove the patient language from the forward guidance policy regarding interest rates during Wednesday’s FOMC statement. Consensus is that the Fed is impatient with the patient language and it will be eliminated despite the surging dollar and below target inflation. However, this does not mean that a June lift off is certain. What is certain is that investors should be prepared for market volatility. Please follow the VIX as a measure of market volatility on page 25 of the Voya Global Perspectives™ book.

Friday, March 13, 2015

In February domestic equity markets staged an astounding reversal from January, bringing major indexes well into positive territory for the year and whipsawing many who sold into the softness. In March markets reversed course and most major U.S. indices are now posting negative returns so far this month. So January was down and investors got scared and sold.  February was up big and investors who missed out bought.  Now March is down. What do you think investors will do?  Hmm, I think you get the drift and this doesn’t sound like the best-laid plan.  Meanwhile, international markets have continued to outperform, suggesting to us that 2015 might be particularly painful for those blind to the “folly of gaming diversification.”   Please see the latest Global Perspectives Monthly Commentary, “Market Whipsaw Sheared Bears Like Sheep in February”.

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.


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