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Six Charts to Watch in June

05/31/2011

May has thankfully come to an end. For the first time in six months, I would characterize the past month as "corrective" in nature. Commodity outflows exceeded $4 billion. Fixed Income inflows surged, raising the Q2 total above $43 billion, well ahead of the full Q1 total of $31 billion.  June should provide further evidence as to the magnitude of the global growth slowdown and central bank strategies used to navigate the slowdown.
 
The following six charts are worth watching.
 
1.       U.S. 10-Year Treasury
 
Treasury demand remains very strong. Foreign central banks, depository institutions, and safe-haven seekers are the buyers. Troubling is the absence of any rebound from the mid-April 3.60% peak. Yields continue to fall, now approaching 3%.


Source: Bloomberg
 
2.       S&P/Case-Shiller Home Price Index
 
Home price values have declined 33% from their 2006 peak. There has been no recovery in the housing market since the 2008 credit crisis. In fact, fears of a housing "double dip" prevail. Wealth is created domestically through rising capital market prices and rising home values. Problematic for corporate and consumer spending is the combination of falling home and capital market prices.  


Source: Bloomberg
 
3.       U.S. Dollar
 
The value of the U.S. dollar supports my expectation that global growth and the capital markets are experiencing a slowdown, not a meltdown. In my estimation, fundamentals remain weak and will not allow the U.S. dollar to gain any appreciative traction. Recent price action has returned the U.S. dollar to its prevailing downtrend, supporting risky asset prices.


Source: Bloomberg
 
4.       German Unemployment
 
Fears persist regarding a Greek debt restructuring. Multiple analysts suggest the value of the euro currency is on the cusp of a significant decline. My assertion remains "as goes Germany, so goes the value of the euro currency." To that point, Germany's unemployment report improved to its best condition in 20 years.   I expect a firm euro.


Source: Bloomberg
 
5.       ISM Non-Manufacturing
 
The ISM Non-Manufacturing Index is highly correlated to, and a leading indicator of, U.S. GDP. During the 2010 "Baseball Season of Frustration," the Index experienced a modest correction. Currently, we are in the midst of another correction. I will be watching for any sign of an upturn similar to what occurred in September 2010, which would suggest growth is reaccelerating.
 
 
Source: Bloomberg
 
6.       CBOE Volatility Index® (VIX)
 
The VIX remains near its multi-month low, which is supportive of a slowdown, not a meltdown.


Source:  Bloomberg

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