Fed Looks Past June for First Rate Rise Federal Reserve officials at their April policy meeting said in the most explicit terms yet that they are unlikely to start raising short-term interest rates in June.

Many officials “thought it unlikely that the data available in June would provide sufficient confirmation that the conditions for raising the target range for the federal funds rate had been satisfied, although they generally did not rule out this possibility,” the minutes said.

While the minutes suggest a rate increase isn’t completely off the table, only a few Fed officials thought they would have enough confidence to begin raising interest rates at the June 16-17 meeting. (…)

Still, while they acknowledged their uncertainty had risen after the first-quarter stumble, the officials and Fed staff struck a generally upbeat stance about the medium-run outlook, the minutes showed. The staff revised up the growth outlook because the dollar had weakened—which could help exports—and interest rates were expected to stay low longer than previously expected.

Moreover, many officials wrote off the first quarter to temporary factors. (…)

Officials also pointed to statistical quirks in government data that have resulted for several years in weak first-quarter growth readings and stronger figures later in the year. “This tendency supported the expectation that economic growth would return to a moderate pace over the rest of this year,” the minutes said.

Still, longer-term factors are starting to weigh on Fed officials’ thinking and creating seeds of doubt in their outlook.

“A number of participants suggested that the damping effects of the earlier appreciation of the dollar on net exports or of the earlier decline in oil prices on firms’ investment spending might be larger and longer-lasting than previously anticipated,” the minutes said.

Other concerns are creeping in.

A discussion about how high rates might go in the long-run led some officials to ask whether the Fed should do more now to stimulate the economy and wait longer before raising interest rates.

Another discussion about market conditions led some to worry about how Fed rate increases might affect bond markets. In 2013, when Fed officials started talking about winding down a bond-purchase program, bond yields rose sharply—pushing up mortgage rates and stirring a slowdown in the housing market.

Some Fed officials worried at the April meeting of a repeat of that event, known in markets as the 2013 “taper tantrum.” Though the Fed ultimately ended the bond-purchase program without more turbulence in markets, Fed officials worry that an interest-rate move could lead to more bond market volatility that damages the expansion they’re hoping has taken hold.

Architecture Billings Remain Stuck in Winter Slowdown

Riding a stretch of increasing levels of demand for thirteen out of the last fifteen months, the Architecture Billings Index (ABI) dropped in April for the second month this year. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lead time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the April ABI score was 48.8, down sharply from a mark of 51.7 in March. This score reflects a decrease in design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 60.1, up from a reading of 58.2 the previous month.

“The fundamentals in the design and construction industry remain very healthy,” said AIA Chief Economist Kermit Baker, Hon. AIA, PhD. “The fact that both inquires for new projects and new design contracts continued to accelerate at a healthy pace in April points to strong underlying demand for design activity. However, April would typically be a month where these projects would be in full swing, but a severe winter in many parts of the Northeast and Midwest has apparently delayed progress on projects.” (CalculatedRisk)

Vehicle Miles Traveled: Away We Go!

The Department of Transportation’s Federal Highway Commission has released the latest report on Traffic Volume Trends, data through March.

“Travel on all roads and streets changed by 3.9% (9.8 billion vehicle miles) for March 2015 as compared with March 2014.” The less volatile 12-month moving average is up 0.31% month-over-month and 2.64% year-over-year. If we factor in population growth, the 12-month MA of the civilian population-adjusted data (age 16-and-over) is a smaller change, up 0.24% month-over-month and up only 1.48% year-over-year.

Here is a chart that illustrates this data series from its inception in 1971. It illustrates the “Moving 12-Month Total on ALL Roads,” as the DOT terms it.

SENTIMENT WATCH

Oaktree’s Marks Says Europe Better Bet Than ‘Highly Priced’ U.S.

Howard Marks, co-chairman of the world’s biggest distressed-debt investor, Oaktree Capital Management, said Europe has become more attractive than the U.S. even with “virtually all assets trading above their intrinsic value.”

“Europe is offering us somewhat better opportunities,” Marks, 69, said in an interview in London. “We are seeing some opportunities that — on a like-for-like basis — offer better risk-adjusted returns than in the U.S. at the moment.” (…)

“We are at a point in the cycle where we feel virtually all assets are trading above their intrinsic value; some are in ‘highly priced’ territory, and there are few absolute bargains available,” said Marks. “However, on the basis of our history with cycles, we believe there’s somewhat further to go before we reach peak exuberance, and thus peak prices.”

Signs of a Recovery in Eurozone Profits

The forward earnings of the EMU MSCI seems finally to be turning up as both 2015 and 2016 earnings estimates have stopped falling recently. NERI turned positive during April (1.3) and rose to a five-year high in May (4.0) following 48 consecutive months of negative readings. The upturn is widespread including Germany, France, and Spain, though not Italy so far.

The weaker euro finally might be starting to boost profits in the Eurozone. There is probably more upside for the region over the rest of the year barring a Grexit.

This American VC Thinks He’s Getting Out of China Just in Time

(…) “As a startup investor, if I’m paying seven times or less than my U.S. counterparts, I’m going to be okay,” Bell said. “But once I start paying the same? I’m like, no way.” (…)

Bell isn’t the only one with concerns about valuations.

“Angel investing is almost on par with the U.S.,” said Rui Ma, partner for 500 Startups, a Silicon Valley-based fund. “They have the same prices as the U.S. but less traction, the companies are less mature.” (…)