2010 08 03

Lukewarm economic data doesn’t seem to be impacting the US stock market but FX and bond markets are reacting sharply with treasuries, bund and gilt all up and dollar weakening. I do not see any positive economic surprise on the horizon in US other than maybe in weekly initial jobless claims, but I think it would be a while until we see a print below 400k.



• Australia – softer than expected inflation and retail sales (but not weak) helps RBA hold off on further rate hikes
o July retail trade grew at 0.2% which is low but the level remains high and a large $20B welfare handouts had ended lately. It is likely retailers discounted goods fairly heavily and sales volume remains robust.
o RBA decided to keep its cash target rate on hold at 4.5% for the third straight month. This decision was made easier by weaker than expected inflation data last week.

• Switzerland – CPI shows no immediate inflation concern
o CPI data reveals inflation is very weak in both headline and core. This puts a contrasting picture versus extremely strong manufacturing data and encouraging signals from the labor market. SNB can go either way but likely would wait-and-see. They’re in no big rush to raise rates especially when CHF is so strong.

• US – consumers remain weak but looking up. manufacturing data confirms some slowdown
o Consumer spending and income stagnated in June. Savings rate inched up as consumers hunkered down (As indicated by low consumer confidence) and decided to save rather than spend. This could set up a backdrop for increased spending in the medium term IF economic recovery does not hit a road bump.
o US factory orders were surprisingly weak in June even looking at the numbers excluding transportation. But this probably shouldn’t come as a surprise as PMI has been dropping steadily since April. While numbers were weak we are by no means in a contraction terriotory.

• Wheat – recent rally on back of Black Sea drought
o Wheat price holding steady after a 2 year high on concerns over drought in black sea region
o To exacerbate the matter it seems that there is intentional delay in black sea wheat shipments to Asia as suppliers try to take advantage of rising prices.

• Sugar – looks like India inventory recovering sharply as well as supply situation in other regions
o India's sugar inventory on July 1 was up 15.6 percent at 8.9 million tonnes from a year earlier, industry sources said on Tuesday. July stocks, which do not include imported sugar, are sufficient to meet about four months of domestic consumption.
o Thailand said on Tuesday it has no plans to buy back more sugar as domestic supply conditions have improved, likely taking some pressure off near-record premiums.

• Cheapeake Energy – will shift resources to more profitable oil away from nat gas
o Chesapeake Energy Corp on Monday raised its production outlook for the year and said it would shift $400 million in spending originally targeted for natural gas to more profitable oil exploration.
o Because of the current disparity between oil and natural gas prices, a number of U.S. exploration companies, including Chesapeake, have accelerated oil exploration in a bid to fatten profits.