The Federal Reserve’s two-day meeting begins today, ending with tomorrow’s announcement that will be widely analyzed for signals on the expected timing of the first interest rate hike since 2006. Some analysts have recently predicted the first hike could come as early as June, but the wobbly economic data of late suggests that the Fed may be inclined to delay the start of a tighter monetary policy. The market once again seems to be embracing the lower-for-longer view, based on the latest run into bonds. After Treasury yields reached 2015 highs earlier this month, rates have pulled back in recent days ahead of tomorrow’s Fed announcement.
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● Weak US factory data suggest softer economic growth | Reuters
● US Homebuilder Confidence Drops To Eight-Month Low In March | RTT
● Timing of Fed Rate Move Remains Clouded | WSJ
● Empire State Manufacturing Activity Growth Unexpectedly Slows in Mar | Fox
● US oil prices under pressure after hitting six-year low | MarketWatch

Housing starts are expected to increase marginally to an annual pace of 1.069 million units in tomorrow’s update for February, according to The Capital Spectator’s median point forecast for several econometric estimates. The projection represents an incrementally higher level of residential construction vs. January’s data.
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Output in the industrial sector increased at a slower rate than expected last month—0.1% vs. the 0.3% gain projected in Econoday.com’s consensus forecast. A darker picture emerges when we focus on the manufacturing component, which represents the lion’s share of industrial activity. So-called factory output slumped 0.2% last month, the third consecutive monthly decline, the Federal Reserve reports.
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In the previous post on using R for portfolio analysis and design, we discovered that global diversification across asset classes has been modestly beneficial relative to a basic 60%/40% US stock/bond allocation. The global aspect didn’t add a lot of value because US equities during the sample period—from 2004 onward—generally delivered strong results, particularly over the last five years. But the future may not be so kind to a US-centric portfolio and so it’s reasonable to wonder if global diversification may be more productive in the years ahead. On that note, if we’re holding an international portfolio across asset classes, what are the possibilities for managing risk with a more aggressive process vs. a simple rebalancing program? As one possibility, let’s consider how a momentum-factor model compares vs. the basic rebalancing strategy. As a preview, this backtest looks quite encouraging for keeping drawdowns to a minimum while capturing the bulk of the upside returns via staying fully invested in the asset mix.
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● Low wages, high dollar test Fed’s patience | Global Post
● US business confidence drops to post-crisis low in February | Markit
● Global recovery fragile, India a bright spot: IMF’s Lagarde | Reuters
● Global business confidence, hiring intentions slip to post-crisis low | Markit
● Chinese business optimism strengthens to 1-year high | Markit
● German business sentiment improves markedly | Markit
● Swiss Producer & Import Prices Fall Most Since Late 2009 | RTT

US industrial production is expected to increase 0.2% in tomorrow’s February report vs. the previous month, according to The Capital Spectator’s median point forecast for several econometric estimates. The median prediction matches January’s growth rate.
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● Coined: The Rich Life of Money and How Its History Has Shaped Us
By Kabir Sehgal
Review via Financial Times
Kabir Sehgal, a vice-president at JPMorgan, started out to write a book about the 2008 financial crisis, but got carried away and ended up in the Galápagos Islands. After poring over research on financial crises, he was driven to research on human behaviour related to money, which led him to behavioural economics. He then questioned the roots of behaviour, and delved into evolutionary economics, which led to evolution itself, and the notion that exchange — according to some, the purpose of money — is an evolutionary adaptation. From there it was a short hop to the Galápagos to watch a fish eat parasites off a turtle. Mutually beneficial exchange — later facilitated by money — has its roots at the cellular level, and here at the cell, Sehgal finally must rest, at least until we arrive at the next topic in the book.
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US economic data has been a bit wobbly lately—the unexpected slide in February retail sales, which marks the third straight month of red ink, for instance. The optimists say this is just a soft patch for spending, weighed down by a harsh winter. The encouraging figures in other key indicators imply as much, including the upbeat numbers for payrolls. Perhaps, then, it’s no surprise to find that the real monetary base for the US continued to decline through February, laying the groundwork for the Federal Reserve’s first interest rate hike in nearly a decade. The arrival of policy tightening could come as early as June, according to some forecasters… assuming, of course, that economic growth holds up.
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● Cold Temperatures Hurt U.S. Retailers as Sales Drop | Bloomberg
● US Jobless Claims Fell More Than Forecast Last Week | Bloomberg
● US Import Prices Rise 0.4% Amid Rebound In Fuel Prices | RTT
● Eurozone industrial production in slow recovery | City AM
● US Consumer Comfort Index Little Changed Amid Weaker Buying | Bloomberg
● Bank of England’s Carney Sees Gentle Upward Path For Rates | MNI