Market Update

Just a brusque comment today. I was getting some charts together to speak over the ugly Canadian July Labour Force Survey, merely it appears the information were then ugly that they were wrong. The information volition hold upwards re-released on Friday, August xv (at to the lowest degree my charts are ready). I volition instead brand some comments almost the global bond marketplace position rally.

The nautical chart inward a higher house gives an instance of the rally inward global bonds this year. Euro expanse yields are at nowadays at JGB-esque levels. My gut feeling is that bond bears were over-extended going into the depression book summertime season, in addition to they were slow prey for a squelch on geopolitical concerns. Meanwhile, equity markets accept been relatively resilient. I produce non encounter that every bit besides surprising; the principal run a peril that fund sponsors worry almost is under-performance risk. Absent concrete reasons to exit of equities, no i is willing to produce so.

As I discussed before inward "Nuclear Weapons & Monetary Policy", this complacency inward the confront of geopolitical run a peril is non besides surprising. The consequences of escalation are stark, in addition to then the base of operations instance scenario remains that the developed countries volition follow the precedent of the mutual frigidity nation of war (that is, avoiding straight off conflict). But the possibility remains that the geopolitical worries volition force an already weak euro expanse farther into recession.

In the United States, at that topographic point is a face-off betwixt the monetary policy hawks - who accept been alert almost the unsustainability of monetary policy for what seems similar an unsustainable amount of fourth dimension - versus bond marketplace position pricing, which is ratcheting frontwards rates e'er lower. (I started roofing the JGB marketplace position roughly 2001, in addition to then this story seems depressingly familiar.)

I believe that the hawks' analysis of the amount of excess capacity inward the economic scheme is off, merely the electrical flow pricing of bond yields is perchance besides complacent. The U.S. economic scheme is even then expanding, albeit at a sluggish pace. Although it is non the most timely of indicators, the Chicago Fed National Activity Indicator (chart above) is non showing detail weakness. However, I would non hold upwards surprised that rates would grind lower if at that topographic point is no sign of a thaw inward global political tensions.

Finally, I promise to update my charts of the Canadian economic scheme when the labour marketplace position information accept been corrected.

(c) Brian Romanchuk 2014