3 Stories in the global economy that should not go un-noticed
Markets lost ground last week for the third week in the last four, pummeled by ongoing worry about the tapering of the Fed’s stimulus programs. Uncertainty about the longevity of Fed programs has contributed to an increase in volatility lately, and we will not be surprised if that continues in coming weeks. Despite the market losses, economic data was largely positive last week-- Retail sales grew more than expected in May, and applications for unemployment benefits fell.
For the week, the S&P lost 1%, the Dow slumped 1.17%, and the Nasdaq fell 1.32%.
Here are the 3 stories this week that rose above the noise:
Crossed Signals Over Fed's Stimulus Efforts
This week's Federal Reserve meeting is being even more highly anticipated than usual and the Washington Post describes a key reason why. The Fed's new communication strategy that was intended to provide more transparency into their thinking seems to have instead left investors confused by mixed messages. As a result, financial market volatility has increased in recent weeks as investors speculate when the Fed is likely to start reducing the amount of their monthly bond purchases.
Fed officials have pointed to "substantial improvement" in the job market as a key data point that will determine when the bond purchases will be adjusted, but have not provided a consistent set of criteria over how they will measure this improvement. As a result, it seems reasonable to expect that Fed Chairman Ben Bernanke will spend much of his news conference Wednesday following the Fed's two-day policy meeting attempting to provide a clearer message regarding when the Fed's asset purchases will be reduced. Needless to say, market participants will be watching closely.
U.S. Inflation Data Points to Firming Economy
This morning the U.S. Department of Labor reported that the consumer price index rose 0.1 percent last month, which follows two straight months of declines, while the core index, which excludes food and energy costs, rose 0.2 percent from last month and is now up 1.7 percent in the 12 months through May. As consumer spending has increased the trend has been slightly higher inflation, which provides support that the Fed may move closer to paring back its economic stimulus programs as soon as this fall.
Abenomics Races against the Clock
In a recent Bloomberg op-ed, Tokyo-based William Pesek discusses Abenomics, which is new Japanese Prime Minister Shinzo Abe's giant monetary and fiscal stimulus plan to pull Japan out of a deflationary funk. As Japanese markets soared through the middle of May, Abe and his plan received high ratings by the public.
However, the last month has seen a decrease in support for Abe. As the Japanese market has become more volatile, the public has begun to question Abenomics. Companies have not raised prices (as intended by the plan), and polls show the public is beginning to questing Abe's policies. While so many predicted this time was different such a short time ago, slowly it is looking like Abe's fate may be no different from the previous 10 Japanese prime ministers, which have each lasted an average of just over a year.
Articles chosen and summarized by the First Allied Asset Management, Inc. investment management team.
