The graph below shows US unemployment alongside the Fed rate over a period of 45 years. From this you can observe the broad relationship between the two, specifically the time delays between Fed rate hikes and the upturn in employment which has historically followed. This time the Fed have delayed the rate hike for a number of reasons, but if history is anything to go by, we can perhaps use thi…Read the article
The declining unemployment rate in the US has renewed the debate on the timing and pace of monetary tightening by the Fed. While wage pressures have been muted thus far, the risk is rising that further declines of unemployment will lower the rate below non-inflationary (NAIRU) levels and prompt the Fed to start hiking.
For emerging markets, one of the main transmission mechanisms is through wea…Read the article
Have you seen the film The Day After Tomorrow? The one where U.N. officials foolishly ignore climate scientist Jack Hall (Dennis Quaid) and a super-storm plunges New York into a new Ice Age? Well it was colder than that last week when Mike and I made a research visit over there. With wind-chill it was a billion below. I was only able to survive by laughing at Mike forgetting to wear a hat and g…Read the article
The Fed has basically used three major themes in response to the financial crisis from a monetary point of view:
- Lower short term rates
- Quantitative easing
- Operation twist – an attempt to flatten the yield curve
The Fed has communicated that it now expects the first move in normalising rates as the economy recovers will be to increase short term rates. Personally I think there are other alter…Read the article
Credit curves are usually upwards sloping; as you’d expect, investors require more of a credit risk term premium for lending for a long time than for a short time, all else being equal. As the charts below show however, the steepness of USD IG non-financial credit curves has become rather extreme in 2014. At year end, the asset swap (ASW) spread differential between c. 25 years and c. 2 years w…Read the article
US inflation has been surprisingly low for a few months after a peak in May 2014. According to the latest data released in September, core CPI (i.e. excluding food & energy) stands at just 1.7% with much of this weakness caused by declining goods prices. According to the US Bureau of Labor Statistics (BLS) the average price of imports, excluding fuel, has not increased in six months. A stronger…Read the article
Global growth concerns, fears of a less accommodative Fed, and limited high yield market liquidity coupled with complacent and crowded investor positioning has served to reprice the US high yield market over the past few months. Following on from the worst quarterly performance in Q3 2014 for some three years, the US high yield market arguably now offers a significantly more attractive entry po…Read the article
I blogged last year about the state of the US labour market and given the recent release of September’s initial jobless claims data, this seems like a good time to revisit these ideas.
US Initial Jobless Claims is an unemployment indicator which tracks the number of people who have filed jobless claims for the first time, representing the flow of people receiving unemployment benefits. The Sep…Read the article
The decoupling of European and U.S. yields has been one of the key bond market themes in 2014 and therefore a much-discussed topic in our blog and elsewhere. Over the past two and a half months, however, a second type of transatlantic decoupling has emerged, this time with regards to credit spreads.
Let’s first have a look at the relative year-to-date (YTD) performance of USD and EUR investment…Read the article
We saw further evidence of the strengthening US labour market on Friday. In September, 248,000 new jobs were added and the unemployment rate fell below 6% for the first time in six years. Headline unemployment rates in Europe, by contrast, have been more dismal, with the latest numbers coming in at 11.5% across the Eurozone for August.
Less encouraging for the US was the participation rate fall…Read the article