BNY Mellon Global Markets – Weekly Market Commentary

Giving Thanks

As this is our last weekly before the Thanksgiving holiday, we thought it appropriate to provide a market view of things that we can give thanks to this year. To say that the market expectations at the start of the year were well off the actual mark is a vast understatement. With expectations that the global economy would firmly emerge from the shadows of the financial crisis, rising rates were a widely held market expectation. The consensus expected a 10-year yield in excess of 3% and a 30-year north of 4% on the heels of U.S. growth that would accelerate into the 3% range at the end of the year. While interest rate estimates could not have been further from the mark, U.S. growth estimates are trending relatively close to the 2.9% 4Q:14 y/y expectations. The resilient U.S. economy is the first thing that we are thankful for with the following table illustrating that most data points have an either positive or neutral trend. Employment gains remain the standout performer for the economy as the unemployment rate has fallen to 5.8% on the heels of an average +230k in monthly non-farm jobs this year. Concerns around the participation rate continue, although it has been largely stable for the year with structural changes providing a partial explanation for the precipitous drop off since 2008. The largest blemish on the employment picture is the lack of wage growth, which has been in the 2% range for the past five years, well below the 3%-3.5% we saw prior to the crisis. The Fed, nonetheless, is maintaining its higher inflation outlook, likely due to the expectation that wage growth will begin to accelerate as the UER approaches 5.5%.

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