David Rosenberg: North America Is Losing Some Serious Momentum

David Rosenberg

David Rosenberg remains undeterred by a market that’s near all-time post-crisis highs.

Today he brings our attention back to the slowing North American economy:


The U.S. economy may in fact be contracting again. The monthly data from Macroeconomic Advisers showed that real GDP contracted 0.6% in August. While this did follow a red-hot +1.25% gain in July, this does mark the third decline in real activity in the past four months. And, as an exclamation mark to the overall deflationary backdrop we are in, nominal GDP also fell 0.4% in August and has contracted now in three of the past four months. Maybe the bond market does not need the Fed’s help after all — the super-soft economic environment is all the Treasury market really needs to sustain the downward trend in yields.

And, talk about taking a knife to the forecast — to both growth and inflation. That is what the Bank of Canada just did as it signalled a deep pause in what has turned out to be a brief interest rate cycle. As the Bank indicated, “the global economy is entering a new phase”, a “time of transition” that involves “a weaker U.S. outlook, constraints beginning to moderate growth in emerging-market economies” and “domestic considerations that are expected to slow consumption and housing activity in Canada.” Wow. All it took to bring the economy to its knees were three rate hikes (OK, and the loonie back at par too!).

Is there anything in these numbers and comments that would otherwise support this crazy notion that there is a bubble in bonds? Could it be that the fixed-income market is telling us the same thing about the economic outlook that the Bank of Canada is — maybe, just maybe, it is the equity market, liquidity-craved as it is, is the odd man out?

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