Insiders continue to favour a reflating global economy

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As we expected, we have seen a modest bounce in the Utilities SPDR ETF (XLU*US) which has advanced about 0.7% since our report last week. Concerns about Greece and slowing industrial production helped the long-bond sensitive group to move off its recent lows. As has often been the case throughout the economic recovery, the data has provided investors with a mixed picture. Industrial production numbers disappointed on Monday, but retail sales generally came in better than expected last Thursday. 

The persistence of some data that surprises on the downside will likely encourage the Federal Reserve to take a go-slow approach on interest rate increases.

Leading up to today's FOMC policy statement at 2 PM EDT, we believe that one of the most important speeches delivered by Fed policy makers was the one given by Lael Brainard on June 2nd when she expressed concern about the rising greenback. Given the governor's remarks, we would be surprised if the Fed said anything today that would encourage a strong US dollar rally.

A rising American currency would make Fed assertions that inflation is heading back up to its 2% target less credible. Last week according to the Wall Street Journal, the Labor Department reported that import prices in May rose for the first time in about a year. The upturn was fuelled by rising oil prices that accompanied a weaker greenback. 

A rapid reversal of recent commodity price gains is an outcome that would not help with the Fed's clear desire to start moving rates up sometime this year. If and when the Fed does start to raise rates, the central bank will be aiming to move in a way that does not choke off economic activity or inflation. While there is no guarantee that they can pull it off, on balance American insiders continue to favour a reflating US and global economy. 




American banks made new multi-year highs yesterday (June 16)

Since the first day of spring, banks and Basic Materials stocks have been outperforming the broad market. Heading into the summer, insider signals suggest these pro-reflation groups will continue their relative strength.


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