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Economic Update

March 9, 2015

Economic themes: Employment, ECB, Washington.

  • Employment: Good news was bad news, as nonfarm payrolls increased by 295k in February, well above forecasts of a 230k increase, and the unemployment rate ticked down to 5.5%. Equity and fixed income markets sold off on the anticipation that the Fed will be more likely to enact more restrictive monetary policy.  Federal Funds futures contracts imply a July 2015 rate hike.
  • ECB: The European Central Bank has officially kicked off their €1.1 trillion bond buying program, in hopes to stimulate the Eurozone’s stagnant economy. Last week, Germany was able to successfully sell €3.28 billion in 5-year government notes at -0.08%, marking the first time ever they’ve sold a 5-year note at a negative yield.  For longer term investors, the German 10-year bond is yielding an astounding 0.35%.  Such levels make the US 10-year treasury look remarkably attractive at 2.2%.  ECB President Mario Draghi added that securities will not be purchased if their yield is lower than the ECB deposit rate of -0.2%.  While some seem puzzled by negative yields, the combination of mandated purchases from banks, central banks, pension funds, and index funds, among others, has maintained the negative yields.  Meanwhile, Greek officials have been told to speed up negotiations in order to release more bailout funds after being awarded a four month extension, though risk running out of cash as soon as the end of the month.
  • Washington: Political risk is back, as Republicans are using the debt limit as leverage, again. The Federal government is scheduled to reach the debt limit on March 15th, though extraordinary measures could delay the ultimate deadline for 6-7 months.  Senate Majority Leader Mitch McConnell is working to quell such fears, ensuring his party will agree to raise the debt limit before it’s too late.
  • Economic highlights for the week ahead:
    • Thursday, 3/12/2015: Jobless Claims, Retail Sales.
    • Friday, 3/13/2015: PPI, Consumer Sentiment.

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