Friday, May 30, 2014

Is The Economy Bouncing Back?

Markets are mixed to lower in early trading.  There were some conflicting economic reports this morning that might leave some investors wondering if the economy is really bouncing back as much as economists predicted following the 1% contraction posted in Q1.

Personal consumption for April fell -0.1%.  With consumer spending making up two-thirds of GDP, this is not the type of data we were hoping to see.  Where is the pent-up demand from the terrible winter weather?  Hopefully May shows a true thaw.

The Chicago PMI, by contrast, showed a big improvement in May jumping to 65.5 from 63.0.  That is the highest reading since 2011 and a pretty strong level.  Consumer sentiment also remains high with the May reading staying at 81.9.

So we have some mixed signals in terms of economic data.  That said, most still expect at least a mild bounce back from Q1, with GDP growth getting back in the 2% range next quarter.  Q1 of next year could look pretty strong when compared to the year-over-year comparison of -1.0% just printed for Q1 2014.

Asian markets were mostly lower.  Japan's industrial production dropped -2.5%.  Europe's markets are mixed.  German retail sales fell -0.9%.  The ECB made additional comments that the central bank is ready to act and deploy 'non-standard' tools to combat the continued threat of low inflation.

 The 10-year yield is bouncing slightly from low levels to 2.47%.  And the volatility index remains very low at 11.48.  A spike in the VIX seems likely at some point, but timing is the key.

Gold prices are lower again to $1246, and oil prices are pulling back to $102.70.

Trading comments: No recent changes to our outlook.  The new highs in the market keeps us incrementally more bullish and we remain in 'buy the dip' mode into the early summer.  Rest up and have a good weekend.  A new month starts on Monday.

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