AMERIPRISE FINANCIAL, INC.
The Ripple Effect of Falling Gas Prices
12/15/2014 | David Joy
Once again last week, the contrast between the economic experience in the U.S. and the rest of the world was on full display. Domestically, retail sales surged in November to their best monthly gain since back-to-back strong increases in February and March, when consumers emerged from the polar vortex-driven winter slowdown. And the October report was revised higher, reinforcing the strong rebound from September's decline.
November's gains were widespread, helped along by falling gasoline prices and strong jobs growth. In fact, falling revenues at service stations accounted for one of only two retail categories which experienced declining sales during the month.
Consumer confidence also rose. The December preliminary reading of consumer confidence by the University of Michigan rose to its highest level since January 2007, a full year before the recession began.
The fall in gasoline prices is partially compensating for the lack of wage growth that has characterized this recovery, despite the pace of job creation. Annual average hourly earnings growth has consistently hovered near two percent for the past five years. As the jobless rate continues to fall, wages should be expected to begin climbing, and there was some evidence of that in the stronger monthly wage increase in the November jobs report. But overall, gains have been slow to emerge, making the fall in gasoline prices even more important to the outlook for consumer spending.
Despite the encouraging news for U.S. consumers, stocks could not overcome the overarching concern that the fall in oil prices is being driven by falling demand as much as it is by rising supply. After reaching an all-time high on the previous Friday following the robust November jobs report, the S&P 500 fell 3.5 percent last week, its worst weekly performance in two and a half years, although it did find support at its 50-day moving average.
In Europe, where the latest round of industrial production reports were soft, stocks fell 4.6 percent, as measured by the MSCI Europe Index. In Japan, where the decline in the third quarter was steeper than first estimated, the Nikkei Index fell by a similar amount. And in China, there was weakness across the board as trade, inflation, and industrial production numbers were all softer than anticipated. The MSCI Emerging Markets index fell 4.8 percent.
North Sea Brent crude oil plunged another 10 percent on the week to $61.85 a barrel, bringing to 45 percent its decline since June. The International Energy Agency last week once again lowered its demand estimates for 2015, and Saudi Oil Minister Ali al-Naimi questioned why the Saudis should even consider cutting production.
Bond yields across the globe also fell in response to the growth concerns. In the U.S. the ten-year note yield dropped to 2.08 from 2.31 percent. In Germany, the ten-year yield fell from 0.78 to 0.62 percent. And in Japan, the equivalent yield slipped to 0.39 percent from 0.41.
Most of the economic focus this week will be back on the U.S. The calendar is full of reports on industrial production, housing, inflation, flash PMIs, and leading indicators. But the real focus will be on the Fed meeting on Tuesday and Wednesday, including the press conference following Wednesday's rate decision.
There is widespread speculation that the Federal Open Markets Committee could drop the "considerable time" qualifier when referencing how long rates are likely to remain at their current 0-0.25 percent target. Certainly, the fall in oil prices is putting downward pressure on inflation, buying the Fed time. But, the overall strength of the domestic economy argues that rates can begin to be slowly restored to normal.
The meeting also includes an updated summary of economic projections, that will be dissected regardless of whether the statement language changes. That a language change is even being considered highlights the contrast with the experience overseas. In Japan, Prime Minister Abe won a solid election mandate to continue his battle to stimulate the economy. And in the Eurozone, in response to a Bloomberg survey, 90 percent of respondents now expect the European Central Bank to embark on a full-blown program of quantitative easing sometime in next year's first quarter.
Important Disclosures:
The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Ameriprise Financial associates or affiliates. Actual investments or investment decisions made by Ameriprise Financial and its affiliates, whether for its own account or on behalf of clients, will not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not account for individual investor circumstances. Investment decisions should always be made based on an investor's specific financial needs, objectives, goals, time horizon, and risk tolerance.
MSCI Europe is a market capitalization-weighted benchmark index made up of equities from 15 European countries, with France, Germany, and the United Kingdom representing about two-thirds of the index.
The Nikkei index is a price-weighted average of 225 stocks of the first section of the Tokyo Stock Exchange.
The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets.
The S&P 500 is an index containing the stocks of 500 large-cap corporations, most of which are American. The index is the most notable of the many indices owned and maintained by Standard & Poor's, a division of McGraw-Hill.
Investment products are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution and involve investment risks including possible loss of principal and fluctuation in value.
Ameriprise Financial Services, Inc. Member FINRA and SIPC.
© 2014 Ameriprise Financial, Inc. All rights reserved.
12/15/2014 | David Joy
Once again last week, the contrast between the economic experience in the U.S. and the rest of the world was on full display. Domestically, retail sales surged in November to their best monthly gain since back-to-back strong increases in February and March, when consumers emerged from the polar vortex-driven winter slowdown. And the October report was revised higher, reinforcing the strong rebound from September's decline.
November's gains were widespread, helped along by falling gasoline prices and strong jobs growth. In fact, falling revenues at service stations accounted for one of only two retail categories which experienced declining sales during the month.
Consumer confidence also rose. The December preliminary reading of consumer confidence by the University of Michigan rose to its highest level since January 2007, a full year before the recession began.
The fall in gasoline prices is partially compensating for the lack of wage growth that has characterized this recovery, despite the pace of job creation. Annual average hourly earnings growth has consistently hovered near two percent for the past five years. As the jobless rate continues to fall, wages should be expected to begin climbing, and there was some evidence of that in the stronger monthly wage increase in the November jobs report. But overall, gains have been slow to emerge, making the fall in gasoline prices even more important to the outlook for consumer spending.
Despite the encouraging news for U.S. consumers, stocks could not overcome the overarching concern that the fall in oil prices is being driven by falling demand as much as it is by rising supply. After reaching an all-time high on the previous Friday following the robust November jobs report, the S&P 500 fell 3.5 percent last week, its worst weekly performance in two and a half years, although it did find support at its 50-day moving average.
In Europe, where the latest round of industrial production reports were soft, stocks fell 4.6 percent, as measured by the MSCI Europe Index. In Japan, where the decline in the third quarter was steeper than first estimated, the Nikkei Index fell by a similar amount. And in China, there was weakness across the board as trade, inflation, and industrial production numbers were all softer than anticipated. The MSCI Emerging Markets index fell 4.8 percent.
North Sea Brent crude oil plunged another 10 percent on the week to $61.85 a barrel, bringing to 45 percent its decline since June. The International Energy Agency last week once again lowered its demand estimates for 2015, and Saudi Oil Minister Ali al-Naimi questioned why the Saudis should even consider cutting production.
Bond yields across the globe also fell in response to the growth concerns. In the U.S. the ten-year note yield dropped to 2.08 from 2.31 percent. In Germany, the ten-year yield fell from 0.78 to 0.62 percent. And in Japan, the equivalent yield slipped to 0.39 percent from 0.41.
Most of the economic focus this week will be back on the U.S. The calendar is full of reports on industrial production, housing, inflation, flash PMIs, and leading indicators. But the real focus will be on the Fed meeting on Tuesday and Wednesday, including the press conference following Wednesday's rate decision.
There is widespread speculation that the Federal Open Markets Committee could drop the "considerable time" qualifier when referencing how long rates are likely to remain at their current 0-0.25 percent target. Certainly, the fall in oil prices is putting downward pressure on inflation, buying the Fed time. But, the overall strength of the domestic economy argues that rates can begin to be slowly restored to normal.
The meeting also includes an updated summary of economic projections, that will be dissected regardless of whether the statement language changes. That a language change is even being considered highlights the contrast with the experience overseas. In Japan, Prime Minister Abe won a solid election mandate to continue his battle to stimulate the economy. And in the Eurozone, in response to a Bloomberg survey, 90 percent of respondents now expect the European Central Bank to embark on a full-blown program of quantitative easing sometime in next year's first quarter.
Important Disclosures:
The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Ameriprise Financial associates or affiliates. Actual investments or investment decisions made by Ameriprise Financial and its affiliates, whether for its own account or on behalf of clients, will not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not account for individual investor circumstances. Investment decisions should always be made based on an investor's specific financial needs, objectives, goals, time horizon, and risk tolerance.
MSCI Europe is a market capitalization-weighted benchmark index made up of equities from 15 European countries, with France, Germany, and the United Kingdom representing about two-thirds of the index.
The Nikkei index is a price-weighted average of 225 stocks of the first section of the Tokyo Stock Exchange.
The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets.
The S&P 500 is an index containing the stocks of 500 large-cap corporations, most of which are American. The index is the most notable of the many indices owned and maintained by Standard & Poor's, a division of McGraw-Hill.
Investment products are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution and involve investment risks including possible loss of principal and fluctuation in value.
Ameriprise Financial Services, Inc. Member FINRA and SIPC.
© 2014 Ameriprise Financial, Inc. All rights reserved.
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