William Riegel, Chief Investment Officer, TIAA Investments
January 6, 2017
Across the Atlantic, bullish data reports for December helped the broad STOXX 600 Index advance 1.1% (in local terms) for the week and move into bull-market territory, having surged more than 20% from its February low. The Eurozone’s manufacturing and service sectors grew at their fastest pace since 2011, with the currency bloc’s three largest economies—Germany, France, and Spain—all showing improved business growth. Moreover, rising oil prices pushed the region’s consumer prices up a healthy 1.1% compared to a year ago, the fastest rate in more than three years.
Asian markets joined in the rally. Encouraging manufacturing data boosted Chinese stocks, even as the government imposed new restrictions designed to contain capital outflows amid a weakening currency. Expectations for a soft yen helped Japan’s Nikkei 225 Index gain 1.8% (in local terms) for the week, notching a 13-month high along the way.
Current updates to the week’s market results are available here.
The equity market’s firm tone carried over to a wide range of non-Treasury fixed-income “spread sectors.” Positive fund flows, low supply, and robust data releases supported emerging-market bonds, floating-rate loans, and both high-yield and investment-grade corporate bonds. A continuing turnaround in Treasury yields also helped performance. Since closing at a more than two-year high of 2.60% on December 16, the yield on the bellwether 10-year U.S. Treasury fell for the third consecutive week. It closed at 2.42%As of afternoon trading on January 6, (Yield and price move in opposite directions.)
The U.S. labor market added 156,000 jobs in December, a solid showing. Payrolls for October and November were revised up by a combined 19,000. At 4.7%, the unemployment rate remained near a nine-year low. The labor force participation rate (62.7%) changed little in December and was flat for the year as a whole. Most encouragingly, average hourly wages jumped 0.4% in December and 2.9% in 2016—the fastest annual increase in seven years.
We’ve been expecting labor markets to tighten, leading to rising wages and decelerating job growth as employers struggle to find workers to fill positions. Indeed, employment gains this year have averaged 183,000 per month versus 225,000 per month in 2015. In our view, both of these trends will continue this year. Higher wages are a key to lifting the current low rate of inflation to a healthier level and likely led to slightly better personal consumption in the fourth quarter.Among the week’s other reports:
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