Summary

The wealth effect – boosting consumption out of what is perceived as permanent wealth -seems to be kicking in.   Consumers are feeling flush with the humungo gains in stocks and housing over the past few years.  It also appears consumers are not cashing in on their theoretical wealth but rather reducing savings and taking on debt to finance the increase in consumption.   Or, it could be, those who do not own assets are reducing savings and taking on debt to finance their consumption.

David Rosenberg,  Chief Economist & Strategist, Gluskin Sheff,  dishes on the latest GDP release

We’ve seen this picture before.  Wealth is not always so permanent and therein lies the new “boom-bust cycle” of the new millennium.   “It’s the economy stock market, stupid.”

The global economy and stock markets are now in a positive feedback loop.

Fixed-income

– Global 10-year yields breaking higher across the G3 economies;
– U.S. 10-year at highest since April 2014;
– Germany highest since December 2015;
– Japan highest since July 2017;
– China down 10 bps after making a new multi-year high in past few weeks;
– Euro yields in Convergence 2.0 as the eMac Euro vision takes hold;
– Credit behaving bigly as the stock gains feedback into the bond markets.

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Source:  @charliebilello

Currencies

– Dollar flop continues after Secretary Mnuchin’s Davos faux pas.
– Traders sell the Trump walk back.

Stocks

– Ditto last week: global stocks keep ripping, especially emerging markets;
– Brazil, baby, on Não Lula!  Country’s ETF now up 17 percent in dollars for the month.

Other Risk Indicators

– Biotech and retail having a gangbuster January;
– Euro banks confirming breakout;
– Russell 2000 lagging, even though up almost 5 percent for the month. Stunning;
– Bad week for Trannies. Watch this space.

Commodities

– Nattie with another yuuuge week on the nation’s cold snap. Look to fade;
— Crude up on massive net positioning by specs.  Look to fade.

Source: Quandl