Economy and Bond Market outlook November 21 2011

Economy and Bond Market outlook November 21 2011 ; Treasury yields ended the week mixed, with short-term yields rising modestly while long-term rates moved lower. Europe dominated the news again this week as market worries move from one country to the next, with the focus this week on Italy, France and Spain. The European concerns led to an exodus to the safest assets, including the U.S. dollar and Japanese yen which appreciated versus most currencies.

Negative headlines abound, but an interesting positive dynamic continues under the surface as U.S. economic data continues to be positive. This can be summed up in the chart below which depicts the Conference Board’s Leading Index. The index has resumed its uptrend, rising 0.9 percent in October, and is at the highest level in over a year. As a leading indicator, this bodes well for economic prospects over the next several months and confirms many of the positives that have come out of the recent third quarter earnings reports.

Strengths

*. Weekly initial jobless claims fell again to 388,000, hitting a seven-month low, suggesting that hiring may be on the upswing.

*. Industrial production rose 0.7 percent in October, ahead of the 0.4 percent expected. This was driven by a ramp up in auto related production.

*. October retail sales rose 0.5 percent, possibly confirming the recent improvement in the job market.

Weaknesses

*. The eurozone grew a very modest 0.2 percent in the third quarter and a recession appears almost a forgone conclusion.

*. The European sovereign bond markets remain in turmoil as yields rose, and specifically yields on 10-year Italian and Spanish bonds approach seven percent.

*. Chinese exports to Europe have taken a hit in October as manufacturing-centric Guangdong Province reported a year-over-year decline of 8.7 percent.

Opportunities

*. After another good week of economic data, fourth quarter GDP estimates may begin to creep higher with a possibility of three percent growth.

*. With the holiday-shortened week, data will be front-end loaded with durable goods orders, Federal Open Market Committee minutes and initial jobless claims key data points for next week.
Threats
*. The situation in Europe remains extremely fluid and negative news is almost expected at this point. Unfortunately it is politically driven and difficult to predict outcomes and ramifications.For the latest updates on the stock market, visit Stock Market Today

Tags: Bond Markets, Chinese Exports, Earnings Reports, Economic Prospects, European Concerns, Eurozone, Forgone Conclusion, Gdp Estimates, Guangdong Province, Initial Jobless Claims, Italy France, Japanese Yen, Leading Indicator, Market Pulse, Market Radar, Market Worries, Negative Headlines, Quarter Earnings, Quarter Gdp, Term Yields, Treasury Yields, Uptrend For the latest updates PRESS CTR + D or visit Stock Market news Today

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