Fri, March 01, 2024

Outlook for the US Economy

Inflation

Treasury yields in the United States rose on Tuesday as markets reopened following Monday’s Christmas holiday, and investors awaited data that could provide new clues about the state of the American economy.

The 10-year Treasury note yield had risen by about three basis points to around 3.7789%.

Meanwhile, the 2-year Treasury yield rose by more than two basis points last week to 4.3464%. On Tuesday, an auction of 2-year Treasury notes worth $42 billion is scheduled. The relationship between yields and prices is inverse. A basis point is equal to 0.01%.

Investors are looking for clues about a looming recession and inflation developments in the final economic data releases of the year.

This includes S&P/Case-Shiller home price data and the Federal Reserve Bank of Dallas’ manufacturing index, which reflects business activity in Texas’ manufacturing sector, on Tuesday.

On Friday, data showed that the core personal consumption expenditures price index, one of the Federal Reserve’s preferred inflation gauges, rose slightly more than an expected year over year.

To combat persistently high inflation, the Fed has been raising interest rates since 2022.

Concerns among investors have grown in recent weeks about these rate hikes dragging the US economy into a recession.

As the world approaches the end of COVID-19’s almost three-year reign, the virus continues to haunt airports, hospitals, markets, the global economy, and people’s minds. Beijing’s ‘zero-COVID’ policy in 2022 has frequently drawn domestic protests and international condemnation for further dampening the global economy. The Chinese government’s inability to adopt a more calibrated and targeted approach to mitigating the pandemic, rather than such drastic measures as mass lockdowns and restrictions, has dealt new blows to economic sectors ranging from retail traffic to automobile manufacturing. The Arab region’s economic health remains vulnerable to the whims of global commodity markets, particularly oil and gas.

How quickly and urgently can China’s demand for oil recover?

The good news is that oil prices remain above the fiscal and breakeven levels of the Gulf Cooperation Council (GCC) for the time being. Fiscal policy has been more restrained than in previous windfalls, and new efforts at tax collection and increased tourism and service sector activity in the GCC are mitigating the risk of a crash on the other side of this oil market swing.

 

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