In my last update two weeks ago I commented on the continued weakness in the economic data. The economic surprises were overwhelmingly negative and our market based indicators confirmed that weakness. This week the surprises are not in the economic data but in the indicators. And surprising as well is the source of the outbreak of optimism in the bond market and the yield curve.
We’re growing at 2% or so and it is apparently going to take something big to move us off that number. Investors thought for a while that the new Trump administration would supply that something big in the form of tax cuts, regulatory reform and healthcare reform. All that has faded as the reality of governing in a deeply divided country bites into expectations for rapid change.
The Trump agenda was marked to market over the last few months and came up a bit shy. Bond yields fell, the yield curve flattened, gold rose and economically sensitive commodities fell. The dollar also fell as economic growth expectations equalized between the US and the rest of the world. And it appears more and more that the equalization is equal parts worse in the US and better everywhere else. The global economy is not supposed to be a zero sum game but it sure has looked that way in recent years.
This post was published at Wall Street Examiner on July 2, 2017.