SUMMER OF DISCONTENT.
The markets are jumpy again, rebuilding the wall of worry that they so convincingly tore down over the past 2 1/2 months. The main bricks in the wall are mostly the same that were previously discarded, global growth, Fed Policy and a possible hard landing in China. The recent spate of weak data and headlines certainly supports these concerns, although we patently feel that they have lurked just below the surface this entire time. The weak GDP report and general concern that only a small portion of its weakness can be explained by seasonal issues set up the potential for a subpar 1H:16, which will not become clear until mid-summer. China data continues to underwhelm, with recent manufacturing data remaining below 50 despite the massive stimulus efforts that have been in place over the past several months. Euro data has also been weaker, with the European Commission lowering both its growth and inflation forecast, despite nearly two years of negative yields we might add. All of this has pushed expectations of another Fed hike onto the back-burner, with 50/50 odds it will happen this year, and a forward look into mid-2017 before you get a more convincing commitment. The Fed, of course, has proffered that every meeting is live, and recent comments by San Francisco Fed President Williams and Atlanta Fed Lockhart would make one think that this is true. In particular, Lockhart stated that June is a “real option”, while Williams stated he would support a hike if the data remained stable. Of course, neither is a voting member, so we take their comments with a grain of salt. Additionally, the Fed generally wants the market to offer some modicum of respect for their live meeting posture, which the 10% probability placed on the June meeting does not offer. There is a coterie of additional Fed speakers this week, although St. Louis President Bullard is the only voting member of the bunch.