Market – stocks and commodities - is rallying hard on a day with no real news. It seems perhaps there was way too much fear going into this Q2 GDP and Bernanke speech and neither turned out to be disastrous.
Bernanke basically came out and said that US economy is weak but he will do whatever the Fed can do to keep deflation from happening. The question everyone asks is : what more can the Fed do? I for one do not think that the Fed can do anything to affect economic outcome at this point. Would pushing down long term interest rate by another 50bps spur home sales – when employment remains weak and home price continues to fall? I don’t think so.
Q2 GDP is an old news. It did some in better than many feared but keep in mind that any good news happened in April. It has been all downhill since. Direction is far more important than level in macro trading, and direction is all downhill for US, Europe and Japan. UK, Canada, Switzerland and Australia are not so clear at this point.
We are continuing to see disappointing economic data out of US while Europe prints upside surprises. I expect this trend to continue. I think the PMI numbers to be released next Wed would be particularly bad for US given the poor regional Fed surveys we saw and this could lead to a big selloff in stocks/commodities and USD.
Going into the new month I would advocate taking extra protective stance. I just do not see this economic trend reversing anytime soon. If anything Europe numbers will start to disappoint and that can lead to further selloff but I think we need to wait until September numbers come out at the earliest.
Japan deflation continues
• Consumer prices in Japan were down 1.1 percent on year in July, the Ministry of Internal Affairs and Communications said on Friday, falling for the 17th consecutive month as deflationary pressures persist.
Swiss KOF leading indicator shows Swiss economic growth likely reached peak in July
• Switzerland's KOF economic Institute said Friday that its economic barometer reached 2.18 in August from July's revised 2.22. Economists had forecast a reading of 2.2.
• While this most likely means some slowdown in economic growth this by no means foretells stock or currency underperformance. But we will see how well Swiss economy hangs in there and see of CHF could weaken versus EUR in the coming months.
US Q2 GDP not as horrible as feared.
• Revised 1.6% in Q2 was not as bad as most expected.
• If you dig into details the number really wasn’t as bad as people thought : GDP was cut by smaller than expected inventory build and higher than expected imports while domestic consumption was revised higher from original estimate.
Barclays cuts oil price forecast
• Barclays Capital , one of the most bullish banks on the oil market outlook in recent years, has cut its oil price forecasts for 2011 and this year, citing concern about the economy.
• The bank cut its 2010 price forecast for benchmark U.S. crude by $4 a barrel to $78 and reduced its 2011 forecast by $7 to $85, it said in a report on Thursday.
Weather curbs Brazil CS sugar output
• Brazil's 2010/11 center-south sugar output is seen trimmed to 33.73 million tonnes, down from a March forecast of 34.09 million tonnes, due to the effects of dry weather on yields, the Cane Industry Association (Unica) said on Thursday.
• The region produced a revised 28.64 million tonnes of sugar from the 2009/10 crop, when rains reduced the concentration of sugars in the cane but raised the volume of cane available for harvest.
Argentine 2010/11 corn area to rise 9 percent
• Argentine farmers are expected to plant 9 percent more corn in the 2010/11 sowing campaign, partly spurred on by higher prices, the Buenos Aires Grains Exchange said in a report on Thursday.
• In its first estimate for the new season, the exchange forecast commercial-use corn area of 2.865 million hectares (7.079 million acres) in the world's No. 2 exporter.
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