Monthly Economic Outlook

Weak Global Growth but Risks Beginning to Fade

Thu, Nov 8 2012, 09:52 GMT
by Wells Fargo Research Team | Wells Fargo

U.S. Overview

Economy—Early Post-Election, Q4 Still Subpar

Our outlook is for subpar 1.4 percent growth in the fourth quarter, and unless there is a sharp change in policy, we expect sub-2 percent growth in the first half of next year as well. Current strength in consumer spending is not sustainable, in our view, since real income growth remains weak due to modest job gains and weak wage increases, while some current spending has been financed by a decline in the saving rate. Going into 2013, there are a set of tax increases that may also hinder consumer and business spending. Meanwhile, core capital goods orders are down 23.2 percent on a 3-month average annualized rate in September; the bonus depreciation on capital equipment ends this year, and federal funding for extended unemployment benefits winds down. Residential investment will provide some offset to weaker business investment, but on net, we foresee growth remaining at 2 percent or less for 2013 given current trends.

Both headline and core CPI inflation are up 2 percent year over year. As we look to the fourth quarter and into 2013, we see a modest pickup in the pace of headline consumer inflation. However, given the soft demand outlook, combined with ample economic slack that restrains income growth and the pass-through of commodity prices, no acceleration of inflation is in tow. We expect the Fed to remain on autopilot with its open-ended MBS bond-buying program for the foreseeable future; the Fed is squarely intent on fostering a more receptive job-creating environment. As Operation Twist expires, we expect the Fed will step in and fill the $45 billion gap.

International Overview

Weak Global Growth but Risks Beginning to Fade

In the past several months, we have laid out our case for a global growth environment that is weaker than the long-run average for global GDP growth. Our forecast has also been consistently below the more optimistic forecast from the International Monetary Fund (IMF). We still expect weak global growth this year and next, before returning to a more “normal” growth rate in 2014. There are still a number of obvious challenges for global growth, but fiscal and monetary authorities around the world are taking appropriate measures to mitigate the downside risk.

We are not yet ready to signal the all clear. Europe is still in recession, growth in China will remain below trend for the next couple of years and the U.S. economy is still stuck in slowgrowth mode. That said, things seem to be on firmer footing than they were in the summer months when European sovereign bond yields were testing multi-year highs, China was feared to be headed for a more substantial slowdown and some forecasters thought the U.S. economy was poised to slip back into recession.

For the first time since the global economy emerged from the 2009 recession, the various risks seem to be abating rather than growing. Europe has a more robust framework for dealing with sovereign debt problems, China’s economy is stabilizing and, provided it can sidestep the fiscal cliff, the U.S. economy appears to be on firmer footing. The global outlook remains weak, but it is less risky, and it is on the mend.

Published On Thu, Nov 8 2012, 09:59 GMT Previous entries

Wells Fargo Research Team

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It is possible that losses may be suffered due to difficulty in accessing accounts due to high internet traffic or extended wait times to speak to a telephone agent. Freeriding is Prohibited Freeriding is when you buy a security low and sell it high, during the same trading day, but use the proceeds of its sale to pay for the original purchase of the security. There is no prohibition against day trading, however you must avoid freeriding. To avoid freeriding, the funds for the original purchase of the security must come from a source other than the sale of the security. Freeriding violates Regulation T of the Federal Reserve Board concerning the extension of credit by the broker-dealer (Wells Fargo Investments, LLC) to its customers. The penalty requires that the customer's account be frozen for 90 days. Stop and Stop Limit Orders A stop is an order that becomes a market order once the security has traded through the stop price chosen. You are guaranteed to get an execution. For example, you place an order to buy at a stop of $50 which is above the current price of $45. If the price of the stock moves to or above the $50 stop price, the order becomes a market order and will execute at the current market price. Your trade will be executed above, below or at the $50 stop price. In a fast market, the execution price could be drastically different than the stop price. A "sell stop" is very similar. You own a stock with a current market price of $70 a share. You place a sell stop at $67. If the stock drops to $67 or less, the trade becomes a market order and your trade will be executed above, below or at the $67 stop price. In a fast market, the execution price could be drastically different than the stop price. A stop limit has two major differences from a stop order. With a stop limit, you are not guaranteed to get an execution. If you do get an execution on your trade, you are guaranteed to get your limit price or better. For example, you place an order to sell stock you own at a stop limit of $67. If the stock drops to $67 or less, the trade becomes a limit order and your trade will only be executed at $67 or better. Glossary All or None (AON) A stipulation of a buy or sell order which instructs the broker to either fill the whole order or don't fill it at all; but in the latter case, don't cancel it, as the broker would if the order were filled or killed. Day Order A buy or sell order that automatically expires if it is not executed during that trading session. Fill or Kill An order placed that must immediately be filled in its entirety or, if this is not possible, totally canceled. Good Til Canceled (GTC) An order to buy or sell which remains in effect until it is either executed or canceled (WellsTrade® accounts have set a limit of 60 days, after which we will automatically cancel the order). Immediate or Cancel An order condition that requires all or part of an order to be executed immediately. The part of the order that cannot be executed immediately is canceled. Limit Order An order to buy or sell a stated quantity of a security at a specified price or at a better price (higher for sales or lower for purchases). Maintenance Call A call from a broker demanding the deposit of cash or marginable securities to satisfy Regulation T requirements and/or the House Maintenance Requirement. This may happen when the customer's margin account balance falls below the minimum requirements due to market fluctuations or other activity. Margin Requirement Minimum amount that a client must deposit in the form of cash or eligible securities in a margin account as spelled out in Regulation T of the Federal Reserve Board. Reg. T requires a minimum of $2,000 or 50% of the purchase price of eligible securities bought on margin or 50% of the proceeds of short sales. Market Makers NASD member firms that buy and sell NASDAQ securities, at prices they display in NASDAQ, for their own account. There are currently over 500 firms that act as NASDAQ Market Makers. One of the major differences between the NASDAQ Stock Market and other major markets in the U.S. is NASDAQ's structure of competing Market Makers. Each Market Maker competes for customer order flow by displaying buy and sell quotations for a guaranteed number of shares. Once an order is received, the Market Maker will immediately purchase for or sell from its own inventory, or seek the other side of the trade until it is executed, often in a matter of seconds. Market Order An order to buy or sell a stated amount of a security at the best price available at the time the order is received in the trading marketplace. Specialists Specialist firms are those securities firms which hold seats on national securities exchanges and are charged with maintaining orderly markets in the securities in which they have exclusive franchises. They buy securities from investors who want to sell and sell when investors want to buy. Stop An order that becomes a market order once the security has traded through the designated stop price. Buy stops are entered above the current ask price. If the price moves to or above the stop price, the order becomes a market order and will be executed at the current market price. This price may be higher or lower than the stop price. Sell stops are entered below the current market price. If the price moves to or below the stop price, the order becomes a market order and will be executed at the current market price. Stop Limit An order that becomes a limit order once the security trades at the designated stop price. A stop limit order instructs a broker to buy or sell at a specific price or better, but only after a given stop price has been reached or passed. It is a combination of a stop order and a limit order. These articles are for information and education purposes only. You will need to evaluate the merits and risks associated with relying on any information provided. 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