3 Stories in the global economy that should not go un-noticed
Economic data dominated most of last week’s action as investors waited for the latest news on job creation, economic growth, and manufacturing. Stocks ended their winning streak, preoccupied by the Friday jobs report, but quickly regained steam after data revealed a rosy jobs picture.
For the week, the S&P 500 lost 0.04% (though it jumped 1.1% on Friday), the Dow lost 0.41%, and the MSCI EAFE (developed international) fell 2.16%.
Here are the 3 stories this week that rose above the noise:
After Detroit, Who Will Cut City Pensions Next?
Detroit has the ability to reduce municipal employee pensions, potentially by a significant amount, to 23,500 retired city workers following a Federal bankruptcy court ruling last week that granted Detroit the capacity to restructure $18 billion in long-term debt.
The ruling sent a strong message to several states and major cities throughout the country that have poorly funded pension systems. For example, nine states have pension systems that are 60 percent underfunded and the 61 cities with the most underfunded pension systems have a combined $217 billion shortfall between what they have promised in pension benefits and what they have saved to fund their pension systems.
Government pension reform will be a major topic over the next decade. Last week, for instance, Illinois passed legislation that will reduce state employee retirement benefits in order to lessen the growing impact on the state budget and close the gap on Illinois’ significantly underfunded pension system.
Fed’s Bullard Sees Higher QE Taper Odds as Labor Market Improves
Citing recent improvement in jobs data, Federal Reserve Bank of St. Louis President James Bullard expressed his opinion yesterday that the odds have increased for the Fed to soon begin reducing its asset purchases, also known as quantitative easing (QE).
A recent Bloomberg article details the Bullard comments and similar recent comments from other Fed officials which suggest some members of the Federal Open Market Committee are ready to begin the QE tapering process. However, the majority of economists in a December 6 Bloomberg News survey still expect the Fed to wait until next year to begin winding down its asset purchases rather than at its upcoming December 17-18 meeting.
Bullard tempered his comments by noting that he remains concerned about too low inflation. Nonetheless, the article is worth reading for some insight into the thinking of Fed officials heading into next week’s highly anticipated policy meeting.
Solid Pace of Expansion Seen in China
Chinese economic observers will be keeping a keen eye on the annual Central Economic Work Conference which began in Beijing on Tuesday, as China’s top leaders are expected to map out the country’s economic policy agenda for the coming year.
Of particular interest is whether the official 2014 growth target will remain at 7.5 percent or trimmed closer to 7 percent. Recently reported economic data has been encouraging. Industrial output, retail sales, and investment in fixed assets came in with solid year-over-year gains. This data followed the Sunday release of November exports which came in well above analyst expectations.
Articles chosen and summarized by the First Allied Asset Management, Inc. investment management team.
