December Outlook
December 10, 2019  |  By Hank Cunningham

The global economy is rebounding at a modest pace and, with more fiscal stimulus in place, the stage is set for further increases in bond yields. Global growth is forecast to be in the area of 2%. Recently, a blockbuster employment report in the U.S. reinforced the expansion theme and also demonstrated that inflation is beginning to move higher, albeit still at a modest pace.

Significantly, increased fiscal stimulus added to the pickup in growth. Analysts are watching Germany carefully; should it add to the global increase in fiscal stimulus like the $120 billion of new spending announced by Japan, bond yields should rise further. In the Euro zone, sovereign yields moved higher (closer to zero) at a rate faster than that of U.S .yields.

On balance, the U.S. economy appears to be gathering strength. The consumer is in excellent condition with confidence high and debt under control.  The employment market is healthy with gains in wages, the housing market is firm and there are signs that the weakness in manufacturing may be bottoming.

In the absence of some adverse news on the trade front, bond yields are poised to move higher with the September lows of 1.43% on the bellwether ten-year looking more and more like an important inflection point. It is possible to see this bond reaching 2% before year-end and perhaps 2.25% in the first quarter of 2020.        

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