3 Stories in the global economy that should not go un-noticed
Two major economic reports accounted for a lot of the action last week: a third-quarter GDP estimate and the October jobs report. October employment soundly beat expectations, adding 204,000 new jobs; however, the overall unemployment rate ticked higher from 7.2% to 7.3%. It’s hard to know how accurate the numbers are given the disruption of the government shutdown last month. We’ll know more once November numbers are available.
Despite some volatility, the S&P 500 and Dow hit their fifth straight week of gains, boosted by an unexpected jobs report and a rosy Q3 Gross Domestic Product (GDP) estimate. For the week, the S&P 500 gained 0.51%, the Dow gained 0.94%, and the MSCI EAFE (developed international) lost 0.64%.
Here are the 3 stories this week that rose above the noise:
Beware of Falling Gas Prices
The average price of gasoline nationally is $3.19 per gallon and could fall below $3 per gallon this winter. The recent drop in fuel prices has largely been credited to higher domestic oil supplies from a boom in U.S. oil drilling, but this article makes the argument that lower demand is also having a large impact on lower gasoline prices. Total miles driven by U.S. drivers has increased recently, but is 3 percent below the pre-recession peak in 2007. Many factors are contributing to fewer miles driven in the U.S. including high unemployment, an aging population and a smaller percentage of the population living in the suburbs.
A recent Bloomberg piece points out, “while some analysts are applauding what the drop in gasoline prices means for consumer spending, I am much more concerned with the demand side of the equation. The economy remains filled with soft spots and pockets of weakness.”
New Threat to Japan’s Growth
Central Bank stimulus, or quantitative easing, has become popular in recent years with the most recent example coming from Japan’s economic revival experiment. However, Japan is expected to report this week that “Abenomics” – Prime Minister Shinzo Abe’s master plan involving weakening the yen and temporarily boosting infrastructure spending – is faltering. Economists polled by The Wall Street Journal say Japan’s economy likely posted annualized growth in GDP of only 1.7 percent in the third quarter, slower than the 2.8 percent rate for the U.S. and a sharp deceleration from the 3.8 percent and 4.1 percent rates of the prior two periods.
Since Japan is currently the world’s third-largest economy and the longer-term efficacy of quantitative easing is uncertain, investors will be watching closely to see if Japan’s economic experiment can regain traction in the quarters ahead.
Treasury Yields Climb to Eight-Week High Amid Fed Tapering Bets
Following yesterday’s Treasury market closing for Veteran’s Day, yields on U.S. Treasuries rose to their highest levels in eight weeks, as recent stronger-than-expected economic data has increased the likelihood that Fed tapering may come sooner than initially thought. The market reaction to positive data was most apparent following the November 8 jobs report release. While speculation is that the Fed may begin tapering at its December meeting, the median expectation places that date in March, according to a Bloomberg survey of 32 economists.
Articles chosen and summarized by the First Allied Asset Management, Inc. investment management team.
