2010 08 24

Today is a horrible day for risk assets which are basically : stocks, commodities, any currency other than USD/JPY/CHF
Gold and bonds are rallying hard today

I don’t see anything in economic data to justify this. But there is a lot of headlines out there stirring up fears. There are signs austerity measures are already failing. New taxes enacted in Greece to shore up balance sheet is bringing in less than quarter of expected revenue. Spain is already starting to backtrack on austerity promises, and in the UK confidence is plummeting.
Thought leaders Stiglietz and Stephen Roach are both out in media talking up about growing possibility of double dip recessions.
GS and DB came out announcing substantial cut in GDP projected growth is needed.

Basically huge turns of sentiments in the backdrop of poor to mediocre economic data and signs of resurgent trouble in Europe.

I think what we would see is continuing weakness in US and European economy which would be negative for stocks and commodities and positive for bonds. Impact on currency is less obvious – not sure if US weakness would result in USD selloff or further buying on flight to safety.



German Q2 GDP growth strong
• Final Q2 GDP report for Germany paints even stronger picture than previously believed.
• Surging exports and a return to growth in consumer spending powered the German economy to record expansion in the second quarter, producing a broad-based recovery that put Europe's largest economy ahead of its peers.
• The 2.2 percent increase in gross domestic product (GDP) was the fastest quarterly growth rate seen in reunified Germany, the Federal Statistics Office said on Tuesday. Consumer spending grew over the quarter for the first time in a year.


Canadian June retail sales disappoint – but it’s not that bad as most of the drop was due to falling gasoline price
• Canadian retail sales rose less than expected in June, as sales increases in appliance and electronics stores were offset by lower receipts at gasoline stations.
• The report supports the Bank of Canada prediction that the economy slowed in the second quarter after growing at a 6.1 percent pace in the first quarter, the fastest in a decade. The central bank lowered its projection for second-quarter growth last month to a 3 percent pace from its April forecast of 3.8 percent, and said there is a risk Canadian consumers will reduce purchases to boost savings.


US existing home sales plunge
• Existing US home sales plunged a whopping 27.2 percent in July to levels unseen in more than a decade, an industry group said Tuesday, casting further doubt on the viability of the economic recovery.
• The sharp decline was payback for the May expiry of a government homebuyers' tax credit incentive introduced to boost economic recovery from a brutal recession in December 2007.


Tomorrow will have some big numbers:
German IFO business Survey – Aug
US durable goods orders – July
US – new home sales – July