The price of the all important copper appears to be heading lower once again after what in retrospect looks like a dead cat bounce.
One of the main features of the current recovery is the drop in the potential growth rate. In every other recovery since WW2, real GDP has risen back to potential as the recovery got going, thereby closing the output gap. This time around, the output gap has narrowed because potential GDP has been revised down.
The latest data (November) out of the US Department of Transportation for miles driven on US roads shows that more miles were driven on an annualized basis in November than in any month since July 2008.
The last time 10 year TIPS derived breakeven inflation was this low in the autumn of 2010, lumber was around $200/ft. The break in inflation expectations since last August suggests lower lumber prices are ahead.
As we noted earlier this week, banks have significantly underperformed to start the year.
While the collapse in the price of oil has grabbed the headlines, the weakness in the price of copper continues to pique our attention.
As has seemingly been the case all year (or maybe even the past four years), we had a mixed bag of economic releases today in the United States. On the positive side, we had the Chicago Fed National Activity Index post the highest monthly number since December 2006.
About a month ago, we noted that the spread between high yield bonds and treasuries was not confirming the all-time high in the S&P 500. Since that time, we have had a slight turnover in the equity market but an even larger move in junk bonds.