2010 08 26

Today’s economic data offers no major surprise. Slowing manufacturing activities globally (so far Germany has been the only exception).

German outperformance over Japan: one has currency at all time high and the other all time low. Both are exporters. Pretty straightforward what’s going on there.

We are certainly seeing slowdown in Asian economies (except Japan) but we are coming off extremely high levels of growth and things still look quite healthy – for now.

We are seeing EM stocks outperform developed market stocks in this summer selloff. I think this trend is here to stay.

Europe outside Germany and France managed to limp along but I think we will see some very disappointing data starting September. I do not think this modest recovery can be sustained given that the government's fiscal squeeze has not really taken hold yet and a global slowdown is expected in the second half of the year. Trade of Q4 will be to go long US (stocks and currency) vs Europe as overshoots in sentiment recalibrates.

I don’t see economic data in US or Europe getting better. I think there is still good money to be made going long long-dated bonds.

Tomorrow will be a very busy day:
• Japan inflation and unemployment rate
• German Aug PMI
• Switzerland Aug KOF leading indicator (Swiss economy has been outperforming just like Germany. Would be interesting to see if that holds up)
• US final Q2 GDP – usually revised GDP figures are no big deal but this time the downward revision is expected to be huge.
• Bernanke speaks at Jackson Hole – this will move the market. I expect him to state deep concern over economy which would generally be bad for stocks and good for bonds. I think USD would selloff and this can have a positive impact on commodities.

My main trade ideas at this point are:

• Long DAX vs short Nikkei
• Long MSCI EM vs MSCI World
• Long bonds
• Short GBP, Euro and CAD. Long CHF and AUD
• Long copper vs oil
• Long commodities vs stocks

Overall cautious to bearish


Singapore July manufacturing output slows
• Singapore's manufacturing output grew at its slowest pace in eight months in July but still beat analyst estimates, signaling that the Asian region remains resilient in the face of economic troubles in Europe and the U.S.
• The island nation's manufacturing output grew 9.9% year-to-year in July, faster than the median estimate of 6.3%

Spain Q2 final GDP presents no big surprise
• The Spanish government confirmed that the country's economy expanded by 0.2 percent in the second quarter. By comparison, the German economy climbed by 2.2 percent in the second quarter.
• The government forecasts that the Spanish economy will contract by 0.3 percent in 2010 and then grow by 1.3 percent in 2011, despite an ongoing struggle by the country to get a handle on its huge public deficit.

US initial jobless claims better than expected – but still at a DISMAL level
• Last week's figure was revised up to 504K, making for a large room for improvement. Markets already expected a descent, a mild one to 485K which was bettered by the actual number of 473K.

Kansas city Fed survey – another disappointing outcome
• manufacturing activity in the Kansas City region stalled in August.
• The market reversed its gains after the Federal Reserve Bank of Kansas City's manufacturing index, which measures productivity, fell to 0 this month from 14 in July. The employment index turned to negative territory and the report said expectations for the next six months also weakened.