AMERIPRISE FINANCIAL, INC.
The U.S. Economy Charges Ahead
12/08/2014 | David Joy
The U.S. economy continues to pull away from the rest of the world. Last week's data showed an increase in purchasing managers' activity, construction spending, motor vehicle sales, and the best month of jobs growth in almost three years.
In contrast, purchasing manager surveys in the Eurozone dipped, as did retail sales, and the central bank held its fire. In Japan, the economy was weaker in the third quarter than first estimated, as corporate investment slumped and consumer spending remained sluggish.
Not surprisingly, the dollar continued to climb. The DXY dollar index rose another 1.1 percent last week, bringing its climb since the start of the third quarter to 12 percent. Versus the euro, that increase has totaled 10 percent, while versus the yen it has been closer to 20 percent, reflective of the more aggressive Bank of Japan.
Along with sluggish demand, the dollar's strength has contributed to downward pressure on a range of commodity prices, including oil. While the price of Brent crude oil is down 40 percent since late June, as measured by the UBS commodity indices, agricultural prices are down 16 percent since late June, and industrial metals prices have fallen 8 percent since early September. And the rise in the dollar has also been mirrored in a corresponding move lower in gold, which has fallen 10 percent since the end of June.
Dollar strength has been reinforced by the relative attractiveness of bond yields in the U.S. The current 2.29 percent yield on the ten-year Treasury note contrasts with the 0.72 percent yield on the ten-year German bund and the 0.43 percent yield on the Japanese JGB, while the relative strength of the U.S. economy and the relatively less aggressive Federal Reserve going forward reduces the likelihood of currency losses for global investors.
The relative attractiveness of U.S. bond yields has surely kept domestic yields lower than they would be otherwise, even in the absence of rising inflationary pressure. But in recent days, investors were reminded that domestic economic performance does still matter, as does the likely response of the Federal Reserve. Last week, the yield on the U.S. ten-year rose 15 basis points to 2.31 percent, with half of the move coming in response to the stronger than expected jobs report on Friday. The yield on the two-year rose 18 basis points to 0.65 percent, with similar strength on Friday.
The European Central Bank chose not to expand its policy stimulus last week, but did imply that sovereign debt purchases could be initiated early next year. Both stock and bond markets initially sold off on the news, but recovered to end the week on a stronger note.
The economic calendar in the U.S. this week is headlined by the November retail sales report on Thursday. General consumer diffidence is expected to dissipate in response to falling gasoline prices and the improving jobs market, but to what extent remains to be seen. If retail activity in November extends the rebound seen in October, it will reinforce the view that the U.S. economy continues to diverge from the rest of the world, and that dollar strength is likely to continue.
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.
The U.S. Dollar Index (DXY) measures the dollar's value against a trade-weighted basket of six major currencies.
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.
12/08/2014 | David Joy
The U.S. economy continues to pull away from the rest of the world. Last week's data showed an increase in purchasing managers' activity, construction spending, motor vehicle sales, and the best month of jobs growth in almost three years.
In contrast, purchasing manager surveys in the Eurozone dipped, as did retail sales, and the central bank held its fire. In Japan, the economy was weaker in the third quarter than first estimated, as corporate investment slumped and consumer spending remained sluggish.
Not surprisingly, the dollar continued to climb. The DXY dollar index rose another 1.1 percent last week, bringing its climb since the start of the third quarter to 12 percent. Versus the euro, that increase has totaled 10 percent, while versus the yen it has been closer to 20 percent, reflective of the more aggressive Bank of Japan.
Along with sluggish demand, the dollar's strength has contributed to downward pressure on a range of commodity prices, including oil. While the price of Brent crude oil is down 40 percent since late June, as measured by the UBS commodity indices, agricultural prices are down 16 percent since late June, and industrial metals prices have fallen 8 percent since early September. And the rise in the dollar has also been mirrored in a corresponding move lower in gold, which has fallen 10 percent since the end of June.
Dollar strength has been reinforced by the relative attractiveness of bond yields in the U.S. The current 2.29 percent yield on the ten-year Treasury note contrasts with the 0.72 percent yield on the ten-year German bund and the 0.43 percent yield on the Japanese JGB, while the relative strength of the U.S. economy and the relatively less aggressive Federal Reserve going forward reduces the likelihood of currency losses for global investors.
The relative attractiveness of U.S. bond yields has surely kept domestic yields lower than they would be otherwise, even in the absence of rising inflationary pressure. But in recent days, investors were reminded that domestic economic performance does still matter, as does the likely response of the Federal Reserve. Last week, the yield on the U.S. ten-year rose 15 basis points to 2.31 percent, with half of the move coming in response to the stronger than expected jobs report on Friday. The yield on the two-year rose 18 basis points to 0.65 percent, with similar strength on Friday.
The European Central Bank chose not to expand its policy stimulus last week, but did imply that sovereign debt purchases could be initiated early next year. Both stock and bond markets initially sold off on the news, but recovered to end the week on a stronger note.
The economic calendar in the U.S. this week is headlined by the November retail sales report on Thursday. General consumer diffidence is expected to dissipate in response to falling gasoline prices and the improving jobs market, but to what extent remains to be seen. If retail activity in November extends the rebound seen in October, it will reinforce the view that the U.S. economy continues to diverge from the rest of the world, and that dollar strength is likely to continue.
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.
The U.S. Dollar Index (DXY) measures the dollar's value against a trade-weighted basket of six major currencies.
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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