As the Easter Weekend’s Geo-Political Tension Wanes, U.S. Consumer Data Weakens, Gold Rises, Oil Falls

China roared back with a 6.9% year on year Q1 GDP increase, it’s largest since 2015, as its retail and investment activity increased. China’s drivers were housing, infrastructure investment, exports and retail sales improvement. China’s target was 6.5%. China’s rebalancing away from heavy manufacturing and more towards services and consumer demand has not diminished the world’s second largest economy. Indeed, emerging markets are seen to benefit from China’s strong growth data. Rajiv Biswas, Asia-Pacific chief ecnomist at IHS Markit in Singapore stated that, “[t]he whole Asian manufacturing supply chain will get a boost from stronger Chinese growth.” Read more here.

Meanwhile, U.S. inflation took a step back in March simultaneously while retail sales dropped for the second month. So, another mid-year boost in interest rates by the Federal Reserve is now questionable. While the U.S. GDP ratio to national credit is little changed, China’s ration decreased somewhat, given its moderate credit growth since 2015. Still, China’s acceleration is still reliant on its old formula:  growth driven by credit-fueled investment in infrastructure and property. See here. This fact forms the basis for other analysts such as Carson Block, founder of Muddy Waters Research, to posit that China is a massive asset credit bubble risk. Cf. here. Block also warns that he has “never believed in the Chinese GDP data” and also sees a real risk of a U.S. default on its credit obligations.

In other markets, Gold has been climbing on Trump’s weakening dollar, leading analysts to believe that Gold will extend its rally. Jason Schenker, president and founder of the Austin, Texas-based Prestige Economics LLC, sees future U.S. interest rate increases already priced into Gold, and see equities declining especially amid increasing geopolitical risk. Schenker stated Gold broke out above its Bollinger bands, a technically bullish signal. Schenker warned that if the U.S. gets weak Q1 GDP number, equities “are going to take a big hit, the dollar is going to take a big hit, and gold is going to sky-rocket.” Read more here.

The longest rising rig count since 2011 in the U.S. is dropping West Texas Intermediate crude oil below $53/barrel as U.S. output is expected to offset OPEC-led efforts to cut a global supply surplus. Baker Hughes Inc. data shows an additional 11 rigs added just last week. That data plus the increase in shale oil production shows little promise to revive the price of oil in the near future–somewhere in the mid-$40s according to Michael Cohen, Barclay’s head of commodities research. See here.

 

Third Week of March, 2017 Finds Investors Fleeing US Bond Funds

Mid-December, 2017 was the last most recent outflows from US Bond Funds. The Fed’s last rate-hike and conservative GOP Congress looking to impose new national debt ceilings, along with concerns the Fed will pull back on its holdings seem to be the drivers of these redemptions. But, it seems the majority of outflows derive from redemptions in US High Yield Bond Funds. Factoring out those, it appears this fund group woul dhave posted solid inflows. Seems drops in oil prices along with the flight from junk bonds also marked a rotation from Short-Term  to Intermediate Term Mixed Funds. Also gaining where Long-Term US Government Bond Funds, which posted their biggest inflow in over a year. Read more…

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