Technically Speaking: Markets To See Slower Growth Ahead

This graph has a similar pattern as new homes sales: a modest decline in 2018 but a solid rebound recently, probably due to lower mortgage rates.

My conclusion is that the data is softer as a result of the Fed's interest rate increases. But, the softer data isn't fatal.

New orders for durable goods were up (emphasis added):

New orders for manufactured durable goods in March increased $6.8 billion or 2.7 percent to $258.5 billion, the U.S. Census Bureau announced today. This increase, up four of the last five months, followed a 1.1 percent February decrease. Excluding transportation, new orders increased 0.4 percent. Excluding defense, new orders increased 2.3 percent. Transportation equipment, also up four of the last five months, led the increase, $6.1 billion or 7.0 percent to $93.8 billion.

Non-defense capital goods ex-aircraft rose 1.3% - a decent indicator of business investment sentiment.

GDP data was odd. Here's how I characterized it in my Turning Points Newsletter (emphasis added).

If the "guts" of the report [PCEs and investment spending] were a bit strange, what accounts for the large top-line increase? For starters, state and local government spending rose 3.9%, probably to compensate for the government shutdown. That's the biggest increase since 1Q16. Imports declined by 3.7%, which is the largest decline in the last four years. I think the better numbers to use are either final sale to domestic purchasers (+2.3%) or gross domestic purchases (+2.7%). Still, either is better than the very weak 1Q readings we've seen for most of this expansion.

US Conclusion: a decent argument can be made that despite the yield curve's recent inversion, we've come pretty close to dodging a recession. Housing is soft but should be supported by a dovish Fed. Durable goods orders were solid; business spending picked up. And despite its odd composition, domestic demand is held-up in the 1Q19.

The Bank of Canada maintained rates at 1.75%. Their policy announcement made two key observations (emphasis added).

Global economic growth has slowed by more than the Bank forecast in its January Monetary Policy Report (MPR). Ongoing uncertainty related to trade conflicts has undermined business sentiment and activity, contributing to a synchronous slowdown across many countries. In response, many central banks have signalled a slower pace of monetary policy normalization. Financial conditions and market sentiment have improved as a result, pushing up prices for oil and other commodities.

Global trade tensions are continuing to negatively impact sentiment, which is slowing growth. Central banks have become more dovish, which has created more supportive financial conditions - global interest rates are lower and equity prices are higher.

As for Canada, the bank is projecting lower growth (emphasis added):

In Canada, growth during the first half of 2019 is now expected to be slower than was anticipated in January. Last year’s oil price decline and ongoing transportation constraints have curbed investment and exports in the energy sector. Investment and exports outside the energy sector, meanwhile, have been negatively affected by trade policy uncertainty and the global slowdown. Weaker-than-anticipated housing and consumption also contributed to slower growth.

Like parts of the U.S., fracking has created a new mining industry in Canada. Energy extraction has become so large that oil's price drop a few years sent the Canadian economy into a modest recession. This explains why the BOC talks about energy and non-energy business. Weak business sentiment in both sectors is negatively impacting domestic growth.

The Bank of Japan maintained its current interest rate and bond-buying program at its latest meeting. They also added this policy clarification (emphasis added):

The Bank intends to maintain the current extremely low levels of short- and long-term interest rates for an extended period of time, at least through around spring 2020, taking into account uncertainties regarding economic activity and prices including developments in overseas economies and the effects of the scheduled consumption tax hike.

The BOJ has joined the Fed and ECB in the more dovish policy camp. We can also include the Bank of China - which has been stimulating the economy over the last 6 months - to the list.

Central Bank Conclusion: the dovish tone of central banks continues. The BOC sees weak growth internationally and domestically. While the BOJ didn't mention where growth was weak, the chances are very high that they think Chinese weakness has slowed the domestic Japanese economy.

Looking at the combined picture of the Treasury and equity markets, we're still seeing a "slow growth" scenario.

Let's start with the 6-month charts of the Treasuries.