This Week; after the strong increase in interest rates last week and the stock market running to new all-time highs on the DJIA (S&P still hasn’t made it), the week is likely to see some minor improvement in rate markets while the stock market rests. At least that is what we expect, but until there is a significant decline in stock markets here and globally interest rates have more propensity to increase than decline much.
Three key data points this week; Feb retail sales, industrial production and factory usage. Congress working on the budget this week; Republican’s plan has no chance with cuts to Medicare and Medicaid, no cuts on Pentagon spending AND no new taxes. Democrat’s plan; increased taxes on high income earners and corporations and no cuts on Medicare or Medicaid, also a non-starter. The two parties are so far apart that a consensus seems highly unlikely.
French industrial production fell more than expected in January as Europe’s second-largest economy teetered on the brink of its third recession in four years. In Germany, after a sluggish in Q4 the Bundesbank predicts it will rebound in the current quarter. Confidence among investors and businesses jumped in February and retail sales rose the most more than six years in January. Still, factory orders unexpectedly fell and industrial production stagnated. The European Central Bank last week cut its forecasts and now expects the euro-area economy, Germany’s biggest export market, to shrink 0.5% this year before growing by 1.0% in 2014. The German economy will expand 0.4% this year, according to the Bundesbank. In China industrial output had the weakest start to a year since 2009 and lending and retail sales growth slowed, although China is still seen as the global economic engine.
In the US the decline in unemployment and strong increases in non-farm payrolls and private sector jobs surprised about everyone on Friday, (non-farm jobs +236K, non-farm private jobs +246K). The decline in the unemployment rate to 7.7% isn’t as positive as it appears, many simply not looking for a job, that eliminates them from the employment sector. On balance the Feb employment data was much better than had been thought sending interest rates up along with stock indexes. There is little reason now to expect interest rates will decline much on any rallies.