BNY Mellon Global Markets – Weekly Market Commentary


In our mind the economic data continues to support calls for a Fed rate hike in 2015 and commensurate rates that are above where we currently find the present yield curve. To be sure this recovery is an atypical one, where shallower than historical growth and mixed global participation has allowed global rates to remain near the low end of recent and historic ranges. This has created the environment where the path of least resistance appears to favor maintaining these lower yields, while flattening the curve. All we need do is look at is this month’s 10-15 bps increase in yields out to five years, while yields at the long end have declined 9 bps, to see the strength of the trade. The subsequent 20 bps flattening of the curve this month has been accomplished despite economic data that has generally exceeded expectations and pushed the economic surprise index close to neutral after starting the month in the -20 range. In addition to the string of employment gains on a monthly and weekly basis all month, we can add the highest consumer confidence reading since 2007 to the continuing evidence that the effects of the harsh winter will not have an ongoing effect on economic growth. We will add strong corporate earnings and tax-receipts to the list of encouraging economic signs that we use to make our case. Lest we be accused of data picking, wage growth, housing and the consumer continue to provide enough concerns to keep the Fed’s tightly controlled message of low for longer well ensconced in the market. However, count us in the camp that the Fed will try to maintain rates in the lower end ranges for too long and find itself playing catch up once data eventually forces its hand. This is not to say that it will shy away from an initial lift-off mid-2015; it will just try and keep the hiking process a long and labored one that will not resemble the typical 18 month cycle.