Corporate America is strengthening, too. Exports from the U.S. climbed to a record in September, contributing to an unexpected 5.1 percent decline in the trade deficit to $41.5 billion, Commerce Department figures showed last week. The gain in sales to overseas buyers was broad-based, with improvement in everything from soybeans to fuel and civilian aircraft.
The economy may have expanded at a 3.2 percent annual rate in the third quarter, according to economists at Barclays and JPMorgan. The Commerce Department’s first estimate, issued last month, was 2 percent.
Confidence in the economy is emboldening investors and banks to increase lending to companies at ever lower rates.
Bank Loans
Corporate borrowers around the world have sold $3.45 trillion of bonds this year, second only to the $3.93 trillion issues in all of 2009, Bloomberg data show. Yields fell to an average of 2.6 percent last week, from more than 7 percent in early 2009, Bank of America Merrill Lynch indexes show.
Commercial and industrial loans at U.S. banks rose to $1.48 trillion on Oct. 31, the most since 2009 and up from the post- crisis low of $1.2 trillion in October 2010, the Fed said.
In China, exports rose at the fastest pace in five months in October, adding to signs of a rebound after industrial output and retail sales exceeded forecasts. Overseas shipments increased 11.6 percent from a year earlier, the Beijing-based customs administration said in a Nov. 10 statement.
In Germany, Europe’s largest economy, the Federal Statistics Office said Oct. 30 that retail sales increased for a second month in September as rising wages and unemployment near a two-decade low boosted consumer confidence. Sales rose 1.5 percent from August, exceeding the 0.3 percent median estimate of 17 economists surveyed by Bloomberg.
Declining Volatility
Volatility across markets has declined, signaling investors are less worried about the outlook for the economy with central banks in the U.S., Europe and Japan providing unprecedented stimulus.
JPMorgan’s G7 Volatility Index of currencies has fallen 51 percent from the high in September 2011 to 7.5 as of Nov. 9 after reaching a record-low 7.4 on Nov. 1. Bank of America Merrill Lynch’s Option Volatility Estimate MOVE Index covering Treasuries has declined 38 percent this year from its high. The Chicago Board Options Exchange Volatility Index, known as the VIX, ended last week at 18.61, below its high for the year of 27.73 in June.
“We’re of the mind that they will come to a decision in the next months,” Kathy Jones, a fixed-income strategist in New York for Charles Schwab Corp., which has about $1.7 trillion in client assets, said in reference to the fiscal cliff talks. “It’s a question of how much and how soon.”
Jones said she favors high-quality short- to medium-term bonds.
Inflation Concerns
Since Obama’s win, most commodity markets have dropped, which may help ease inflation concerns, further bolstering consumer confidence.
Copper reached a two-month low after the election, while crude oil traded near a four-month low. The S&P GSCI Spot Index of 24 raw materials is down 1.3 percent since Nov. 6.
The plunge in markets may be what it takes to force Washington to reach a compromise, said Jay Schwister, managing director and senior money manager in Milwaukee, Wisconsin, at Baird Advisors, which oversees $17 billion of bonds.
“What level of crisis is going to be required to give politicians on both sides of the aisle enough cover to come to the middle and make a compromise?” Schwister said Nov. 8 in a telephone interview. “It’s clearly a scenario that has at least some probability of playing out. At least a couple of days of going over the cliff to get everybody focused. It might take that.”
Bloomberg News
