What a stark contrast between Korea and Japan. Here is what I had written back on Aug 31:
Korea – Japan – Germany : all major exporters.
• Korean Won is still about 20% weaker now than before the financial crisis.
• Euro is at the lowest level since mid-2006
• Yen is about 30% stronger now than back in mid-2007 when it was over 120.
Guess which economy and stock market is underperforming.
Can anything go wrong with Germany? They continue to crank along and defy the gravity pulling down everyone else in Europe. I think we won’t see the first signs of slowdown until end of Oct.
Chicago PMI surprised to the upside and market rallied initially, but stock market ended the day slightly down. On Sep 1 the massive September to Remember rally was fueled by upside surprise in ISM manufacturing report (September ISM to be released tomorrow). Is the juice out on manufacturing? If so, this might be a bad time to be long. However, it gives me some confidence in our view that US is not as bad as people think. But that might already be baked into stock prices already after a 9% run in SP500 this month.
Another huge day in energy. Perhaps on short squeeze. I feel better on copper vs crude at this level.
Tomorrow is all about ISM and PMI. My guess though is that we won’t see a big pop like we saw on Sep 1.
Korea’s manufacturing activities continue to power ahead in August but signs of slowdown loom
• Korea’s industrial output grew for a 14th consecutive month in August, underscoring the country’s ongoing economic recovery from the global financial crisis.
• However, we are seeing some signs of slowdown here as well as August saw a small decline from July – first monthly decline since October 2009.
• Officials attributed the dip to the summer vacation period and companies upgrading their assembly lines.
• Statistics Korea said the leading economic composite index edged down 0.8 percentage points from July, the eighth straight month of contraction. The index is used to predict economic performance eight to 15 months ahead.
• Statistics Korea, however, added that while the leading economic composite index continued to fall, the trend does not automatically signify that the economy will cool in the near future.
Meanwhile, Japan’s industrial production looks UGLY
• Japan's industrial production fell a seasonally adjusted 0.3% during August, the Ministry of Economy, Trade and Industry said Thursday, with the result way below analysts' forecasts.
• A survey of economists reported by Dow Jones Newswires had tipped a rise of 1.1%. The drop in output marked the third straight month of declines, the ministry said.
Australian job market looks strong
• The total number of job vacancies in Australia in August 2010 was 181,300, which was an increase of 9.8 per cent from the previous quarterly survey, conducted in May 2010.
• The number of job vacancies in the private sector was 163,800 in August, a rise of 9.5 per cent from May.
• We have been seeing a very strong job market in Australia lately which is a source of RBA concerns over inflation and a motivation for them to hike rates.
German unemployment drops sharply
• Is there anything the Germans can do wrong?
• German unemployment decreased sharply in September, and total jobless is expected to fall below the politically sensitive 3 million in October, underscoring the country's strong economic recovery over the summer months.
• The good performance contrasts starkly with other euro-zone states, where unemployment rose markedly during the crisis and is not expected to fall, because of sluggish economic growth and a dire fiscal outlook.
• The German economy is booming, with gross domestic product expected to grow well over 3% this year. Italy, by comparison, will hardly muster 1% growth and the Spanish economy is widely forecast to contract this year and next.
Chicago PMI – STRONGER than expected
• Chicago PMI, generally believed to forecast the ISM because the Chicago area is the manufacturing hub of US, came in stronger than expected for September bucking a series of weak Fed regional reports (somewhat like back in Aug).
• Particularly encouraging was a big jump in New Orders which is believed to the best leading indicator among PMI data.
• This eases concern that ISM to be released on Oct 1 would dip below the 50 mark.
Jobless claims continue to edge lower but still WAY TOO HIGH
• The number of Americans filing for first-time unemployment benefits declined last week but continued to drift in the same range they have been since November.
• There were 453,000 initial jobless claims filed in the week ended Sept.18, down 16,000 from an upwardly revised 469,000 the previous week, according to the Labor Department's weekly report.
Thursday, September 30, 2010
Wednesday, September 29, 2010
2010 09 29
There is no bright news on the horizon on Japan as Eurozone hold on strong thanks mostly to Germany? Switzerland also defying the chokehold of strong CHF. It seems we are nearing the inflection point for Germany, Switzerland and UK for the worse turn in economy. My estimate is late Oct when we start seeing some trace in data. These could be big trades for Q4.
Markets were quiet – minimal actions in stocks, currencies, bonds and commodities. The exception was in energy where much greater than expected draw in refined products sent all energy futures up.
Japan Tankan survey – current sentiment is OK but outlook is deteriorating
• The Bank of Japan's September tankan survey results, published before the opening bell, showed that sentiment among the country's big manufacturers picked up for the sixth consecutive quarter. But the survey also showed that companies expect conditions to worsen sharply over the coming quarter.
• Sentiment among small businesses may fall more than at larger ones in five of six export-driven industries, such as automobiles and machinery, the survey also showed.
• “The Tankan shows the strengthening yen hurts the confidence of manufacturers, with small businesses especially vulnerable to the currency’s gain,” said Daisuke Uno, chief strategist at the unit of Japan’s third-largest banking group. “More small and midsize firms may reduce capital spending to secure cash on hand. The survey also points to their difficulty in raising funds.”
Eurozone business confidence rises to near three-year high
• Businesses in the 16 nations that use the euro continued to become more confident about their prospects in September, while consumers became less upbeat about the economic outlook.
• Business and consumer confidence in the 16-nation eurozone jumped to the highest level for nearly three years in September with a strong gain in Germany, an EU survey said on Wednesday.
• The improvement in sentiment was driven by a surprise rise in the measure of industrial confidence to -2 from -3 in August. Economists had expected a decline to -5. Manufacturers reported an improvement in order books, in part due to a continued pickup in export orders.
• Sentiment was also up in other industries – services, retail and construction.
• However, consumer confidence dipped slightly : Consumers became less fearful of losing their jobs, but less optimistic about the economic outlook, and the headline measure of confidence was unchanged.
• Germany continues to outperform leading the Eurozone. Remains to be seen whether this can continue. I continue to believe that Germany will see notable slowdown later in October.
UK consumer confidence deteriorates
• U.K. consumer confidence fell sharply in September, with the headline measure dropping to -17 from -13 as Britons became much more downbeat about the economic outlook and more fearful of losing their jobs.
• UK is about to see some very restrictive austerity measures start getting implemented soon and I expect it to be a huge drag in economy. I don’t like GBP. I am thinking going long gilt vs bund or treasury might be a good trade but need to research deeper into UK economics.
Swiss’ leading indicator (KOF) remains stable
• The KOF indicator – which attempts to forecast economic condition in about 6 months time – remained stable which is better than analyst forecast. This indicator had been up 14 straight months.
• The Swiss PMI, meanwhile, continues to strike record highs. For the time being, at least, there seems to be no evidence that the strength of the CHF is hurting the Swiss economy.
• At its monetary policy review on Sept. 16, the SNB kept its interest rate target unchanged at an ultra-low 0.25 percent, predicting a significant slowdown as the strength of the Swiss franc and the cooling of the global economy hit the Alpine country.
• The euro zone is Switzerland's biggest trading partner, and the Swiss franc has appreciated more than 10 percent against the euro since the start of the year, prompting business groups to warn exports could be hurt. But so far Swiss economy has been able to endure the strong currency just fine unlike Japan.
Energy up on declines of refined products inventory
• Crude oil rose to a seven-week high after a U.S. government report showed unexpected declines in supplies of gasoline and distillate fuel as refiners cut
• operating rates to the lowest level since April.
• Gasoline inventories fell 3.47 million barrels to 222.6 million in the week ended Sept. 24, the Energy Department report showed. They were forecast to rise by 350,000 barrels, according to the median of 14 analyst estimates in a Bloomberg News survey.
• Distillates, including heating oil and diesel, declined 1.27 million barrels to 173.6 million, compared with a forecast increase of 325,000 barrels.
Markets were quiet – minimal actions in stocks, currencies, bonds and commodities. The exception was in energy where much greater than expected draw in refined products sent all energy futures up.
Japan Tankan survey – current sentiment is OK but outlook is deteriorating
• The Bank of Japan's September tankan survey results, published before the opening bell, showed that sentiment among the country's big manufacturers picked up for the sixth consecutive quarter. But the survey also showed that companies expect conditions to worsen sharply over the coming quarter.
• Sentiment among small businesses may fall more than at larger ones in five of six export-driven industries, such as automobiles and machinery, the survey also showed.
• “The Tankan shows the strengthening yen hurts the confidence of manufacturers, with small businesses especially vulnerable to the currency’s gain,” said Daisuke Uno, chief strategist at the unit of Japan’s third-largest banking group. “More small and midsize firms may reduce capital spending to secure cash on hand. The survey also points to their difficulty in raising funds.”
Eurozone business confidence rises to near three-year high
• Businesses in the 16 nations that use the euro continued to become more confident about their prospects in September, while consumers became less upbeat about the economic outlook.
• Business and consumer confidence in the 16-nation eurozone jumped to the highest level for nearly three years in September with a strong gain in Germany, an EU survey said on Wednesday.
• The improvement in sentiment was driven by a surprise rise in the measure of industrial confidence to -2 from -3 in August. Economists had expected a decline to -5. Manufacturers reported an improvement in order books, in part due to a continued pickup in export orders.
• Sentiment was also up in other industries – services, retail and construction.
• However, consumer confidence dipped slightly : Consumers became less fearful of losing their jobs, but less optimistic about the economic outlook, and the headline measure of confidence was unchanged.
• Germany continues to outperform leading the Eurozone. Remains to be seen whether this can continue. I continue to believe that Germany will see notable slowdown later in October.
UK consumer confidence deteriorates
• U.K. consumer confidence fell sharply in September, with the headline measure dropping to -17 from -13 as Britons became much more downbeat about the economic outlook and more fearful of losing their jobs.
• UK is about to see some very restrictive austerity measures start getting implemented soon and I expect it to be a huge drag in economy. I don’t like GBP. I am thinking going long gilt vs bund or treasury might be a good trade but need to research deeper into UK economics.
Swiss’ leading indicator (KOF) remains stable
• The KOF indicator – which attempts to forecast economic condition in about 6 months time – remained stable which is better than analyst forecast. This indicator had been up 14 straight months.
• The Swiss PMI, meanwhile, continues to strike record highs. For the time being, at least, there seems to be no evidence that the strength of the CHF is hurting the Swiss economy.
• At its monetary policy review on Sept. 16, the SNB kept its interest rate target unchanged at an ultra-low 0.25 percent, predicting a significant slowdown as the strength of the Swiss franc and the cooling of the global economy hit the Alpine country.
• The euro zone is Switzerland's biggest trading partner, and the Swiss franc has appreciated more than 10 percent against the euro since the start of the year, prompting business groups to warn exports could be hurt. But so far Swiss economy has been able to endure the strong currency just fine unlike Japan.
Energy up on declines of refined products inventory
• Crude oil rose to a seven-week high after a U.S. government report showed unexpected declines in supplies of gasoline and distillate fuel as refiners cut
• operating rates to the lowest level since April.
• Gasoline inventories fell 3.47 million barrels to 222.6 million in the week ended Sept. 24, the Energy Department report showed. They were forecast to rise by 350,000 barrels, according to the median of 14 analyst estimates in a Bloomberg News survey.
• Distillates, including heating oil and diesel, declined 1.27 million barrels to 173.6 million, compared with a forecast increase of 325,000 barrels.
Tuesday, September 28, 2010
2010 09 28
Poor consumer confidence didn’t hold the stock market back as stocks staged a late rally.
Bonds are up sharply today on another GREAT treasury auction this time 5 years. No doubt the expectation of QE is running high.
USD is getting punished again down against all currencies except GBP. Hence gold is up again (as is silver).
Richmond Fed survey came in way below expected at -2 in september from +11 in August. Market was expecting +6. September we are again seeing poor regional Fed surveys but then we got surprised by much better than expected ISM which was later confirmed by industrial production and durable goods data. Wonder if that would happen again.
WTI recovered somewhat very late after API data indicated a decent amount of draw in inventory.
Quiet day tomorrow in US but busier elsewhere: BoJ Tankan business sentiment survey, French consumer confidence, Euroland consumer and business confidence, KOF (Switzerland) leading indicator/business sentiment.
U.S. Crude Oil to Average $83 in 2011: Reuters Poll
• U.S. crude oil prices are forecast to average less than previously expected in 2011 due to weak demand and bulging inventories, according to the latest monthly Reuters poll.
China sets 2011 non-state crude and fuel oil quotas
• BEIJING, Sept 28 (Reuters) - China has set the 2011 non-state crude oil import quota at 29.1 million tonnes, 15 percent more than this year, as part of Beijing's commitments to the World Trade Organisation it joined nine years ago.
• The amount, equivalent to about 14 percent of China's total crude imports last year, will be allotted to traders outside the dominant four state traders -- Unipec, Chinaoil, Sinochem and Zhuhai Zhenrong -- but these non-state traders will have to sell back the crude they import to the oil duopoly Sinopec and PetroChina.
Bonds are up sharply today on another GREAT treasury auction this time 5 years. No doubt the expectation of QE is running high.
USD is getting punished again down against all currencies except GBP. Hence gold is up again (as is silver).
Richmond Fed survey came in way below expected at -2 in september from +11 in August. Market was expecting +6. September we are again seeing poor regional Fed surveys but then we got surprised by much better than expected ISM which was later confirmed by industrial production and durable goods data. Wonder if that would happen again.
WTI recovered somewhat very late after API data indicated a decent amount of draw in inventory.
Quiet day tomorrow in US but busier elsewhere: BoJ Tankan business sentiment survey, French consumer confidence, Euroland consumer and business confidence, KOF (Switzerland) leading indicator/business sentiment.
U.S. Crude Oil to Average $83 in 2011: Reuters Poll
• U.S. crude oil prices are forecast to average less than previously expected in 2011 due to weak demand and bulging inventories, according to the latest monthly Reuters poll.
China sets 2011 non-state crude and fuel oil quotas
• BEIJING, Sept 28 (Reuters) - China has set the 2011 non-state crude oil import quota at 29.1 million tonnes, 15 percent more than this year, as part of Beijing's commitments to the World Trade Organisation it joined nine years ago.
• The amount, equivalent to about 14 percent of China's total crude imports last year, will be allotted to traders outside the dominant four state traders -- Unipec, Chinaoil, Sinochem and Zhuhai Zhenrong -- but these non-state traders will have to sell back the crude they import to the oil duopoly Sinopec and PetroChina.
Monday, September 27, 2010
2010 09 27
Pretty slow day again in terms of economic data.
One notable piece of data – although it was no surprise – is falling Japan exports no doubt exacerbated by strong yen. Japan’s economy continues to be a mess but it is quite tricky how to play this market now. There is building expectation that a massive stimulus on the way and BoJ would undertake greater currency intervention. Even though it makes no sense to me, BoJ intervention efforts did result in a rather sizeable rally in Nikkei. In fact, Japan is the best performing stock market in the developed world this year.
Investors are piling onto dividend stocks and investment grade corporate bonds seeking both some safety and yield. I used to hold LQD – investment grade corporate bond ETF – in IQ UCITS until I got rid of them in order to make room for Porcupine in the portfolio (there is a limit to how much total non-UCITS approved securities we can hold). I would add a little of both LQD and DVY (iShared dividends ETF) to IQ BVI in September.
Bond markets (treasuries and bunds) rallied hard today on an exceptionally good 2-year treasury auction in US. It drew the highest level of demand since August 2007. This is partially due to expectation of more Fed buying.
Outside bond market price moves are pretty muted everywhere else.
The biggest news tomorrow is US consumer confidence for Sep. A great month for stock market (this has been the best September in 70 years) should have served as a tailwind but dismal employment picture is expected to push confidence lower.
August Japan Trade Balance – trade surplus falls on slowing exports
• The Japanese economy reported today a narrowing trade surplus in August, as imports increased and the nation’s exports -which are the main pillar of the growth- grew at a slower pace as global demand cooled.
• Breaking down by region exports to US were particularly slow and there is every reason to expect Asia would follow as Asian economy still depends hugely on US consumption.
• Both slowing global economy and strong yen are proving to be a major drag on Japan exports.
Dry U.S. Midwest to spur corn, soybean harvest
• SINGAPORE, Sept 27 (Reuters) - Much-needed dry weather forecast for much of the U.S. Midwest this week is likely to encourage farmers to boost corn and soybean harvesting, a forecaster said on Monday.
• "The outlook calls for dry weather during the next 7 days," said Mike Palmerino, agricultural meteorologist for Telvent DTN in a forecast for the western Midwest.
Shanghai copper hits five-month peak; tight supply
• SINGAPORE, Sept 27 (Reuters) - Shanghai copper hit a five -month high on supply tightness as the market reopened following a public holiday last week.
• "The backwardation, however small, shows that supply in the global market is expected to be tight through the year-end," said a Shanghai-based trader, adding that buying from China was not very active due to unfavourable price differentials.
One notable piece of data – although it was no surprise – is falling Japan exports no doubt exacerbated by strong yen. Japan’s economy continues to be a mess but it is quite tricky how to play this market now. There is building expectation that a massive stimulus on the way and BoJ would undertake greater currency intervention. Even though it makes no sense to me, BoJ intervention efforts did result in a rather sizeable rally in Nikkei. In fact, Japan is the best performing stock market in the developed world this year.
Investors are piling onto dividend stocks and investment grade corporate bonds seeking both some safety and yield. I used to hold LQD – investment grade corporate bond ETF – in IQ UCITS until I got rid of them in order to make room for Porcupine in the portfolio (there is a limit to how much total non-UCITS approved securities we can hold). I would add a little of both LQD and DVY (iShared dividends ETF) to IQ BVI in September.
Bond markets (treasuries and bunds) rallied hard today on an exceptionally good 2-year treasury auction in US. It drew the highest level of demand since August 2007. This is partially due to expectation of more Fed buying.
Outside bond market price moves are pretty muted everywhere else.
The biggest news tomorrow is US consumer confidence for Sep. A great month for stock market (this has been the best September in 70 years) should have served as a tailwind but dismal employment picture is expected to push confidence lower.
August Japan Trade Balance – trade surplus falls on slowing exports
• The Japanese economy reported today a narrowing trade surplus in August, as imports increased and the nation’s exports -which are the main pillar of the growth- grew at a slower pace as global demand cooled.
• Breaking down by region exports to US were particularly slow and there is every reason to expect Asia would follow as Asian economy still depends hugely on US consumption.
• Both slowing global economy and strong yen are proving to be a major drag on Japan exports.
Dry U.S. Midwest to spur corn, soybean harvest
• SINGAPORE, Sept 27 (Reuters) - Much-needed dry weather forecast for much of the U.S. Midwest this week is likely to encourage farmers to boost corn and soybean harvesting, a forecaster said on Monday.
• "The outlook calls for dry weather during the next 7 days," said Mike Palmerino, agricultural meteorologist for Telvent DTN in a forecast for the western Midwest.
Shanghai copper hits five-month peak; tight supply
• SINGAPORE, Sept 27 (Reuters) - Shanghai copper hit a five -month high on supply tightness as the market reopened following a public holiday last week.
• "The backwardation, however small, shows that supply in the global market is expected to be tight through the year-end," said a Shanghai-based trader, adding that buying from China was not very active due to unfavourable price differentials.
Thursday, September 23, 2010
2010 09 23
On economy:
September European flash PMIs were released today. Markit's Eurozone Flash Services Purchasing Manager's Index is made up of surveys of around 2,000 businesses, and basically asks them how their businesses are faring. The reading fell to 53.6 in September from 55.9 in August. This was the survey's lowest reading since February and clearly shows the declining trend. Europeans stock markets were clearly lower today.
The most worrisome was notable drop in German reading which is significantly below the high reached in summer. Germany had been more or less the lone brightspot in global manufacturing over the summer in maintaining accelerating growth. It seems like that has clearly come to an end. It is possible significant strengthening in Euro since early June is finally having its impact on German exports.
I expect US stocks to outperform Europeans stocks and USD to strengthen versus EUR in Q4 as sentiment catches up to Europe’s reality.
In US, weekly initial jobless claims came in on a disappointing side while existing home sales registered a mild positive surprise in growth from the dismal number the month before.
Tomorrow we will see German IFO survey (business sentiment). If we see a large slip here then I can feel more confidence that European slowdown is going to unfold in full force come October. US August durable goods orders would give us a good indication of how true the upbeat August ISM number was. If this doesn’t come in good I think we have a reason to believe that we were fooled in September on inaccurate data.
On stocks and corporate credit:
The lone bright spot in the US economy has been the strength in the corporate sector (banks excluded) where we have seen a strong rebound in profits and extremely cash-loaded balance sheets.
Corporate cash hoarding so far has benefitted corporate bond investors who as a group have no other want other than the companies to not default. Bond holders tend to object to business spending, dividends or stock buybacks. Obviously it’s hard to default on debt if you have a ton of cash on hand. Corporate bonds have rallied hard lately on both risk aversion and falling treasury yields.
We are starting to see the sign that some of the excess cash might be getting deployed. M&A is picking up in a big way and dividends are starting to rise. Both are tailwinds for stock investors. One could argue that for the broad economy the cash would be better spent on hiring, but companies refuse to do so based on uncertain economic picture. Hence recovery in employment is kept muted which feeds into weak consumer confidence. It has been a bad cycle. We will see if we can break out of it in the next couple quarters.
Outlook and sentiment vary greatly among companies based on their size. Larger companies with significant international presence are relatively upbeat while smaller businesses with limited geographic footprint and limited access to credit are suffering. This is why we are more heavily weighted in megacap stocks in our equity holdings. We see this as a continuing theme in US.
On precious metals:
Gold is knocking on the $1,300 mark again today and I expect this to be breached before October. We have seen a remarkable run in gold and silver since early August. While I do not see an up 5% month to be a norm going forward, I believe the economic and financial environment remains very bullish for precious metals. Emerging market central bank purchases, private sector investment, opening up of Chinese gold market, and additional quantitative easing around the world all provide favorable backdrop to continue the rally.
On industrial metals:
Copper continues to creep higher as LME inventory continues to fall (in a stark contrast versus crude oil). Copper is up 21% since July while SP500 is up 9%. Copper is benefitting from robust emerging market demand especially from China – more on that tomorrow. I continue to believe that industrial metals are better place to be than energy in next 3 months.
On the agricultural front:
Russia is expected to increase imports throughout 2011 amidst the shortfall following this summer's drought and wildfires. Russia, typically a net exporter, will have to import nearly 6 million tons of grains, according to SovEcon. The Moscow based research firm also believes that the government's official supply estimate of 90 million tons is grossly overstated and is expected to only be between 77 and 81 million tons. This should keep pressure on grain prices in the upcoming year as more countries will rely on the US, Canada and Australia to provide the world's grain.
Prices of Robusta coffee have risen to their highest prices in a month on concerns that there will be issues with the harvest in Vietnam. Vietnam often has issues in getting coffee to port due to poor infrastructure and poor husbandry. Demand for Robusta coffee, used in instant coffees, is expected to rise due to an increase in the price of higher quality Arabica coffee. As prices for the high quality coffee rise, consumers naturally switch to the cheaper priced coffee. Continued issues with the weather in Brazil have increased prices to historical levels. Many roasters who are not fully hedged will now turn to the Robusta coffee as a way to cut costs.
Australia sugar areas set for wet December qtr
• SYDNEY, Sept 23 (Reuters) - Above-average rain is forecast for much of eastern Australia through the end of the year, threatening to disrupt the sugar harvest and new crop planting but boding well for summer crops such as cotton.
• Australia's northern sugar and cotton growing regions and eastern grain growing regions are all expected to record above-average rain in the last three months of the year as the La Nina weather event intensifies, Australia's weather bureau said on Thursday.
Mexico opens sugar quota to cover demand
• MEXICO CITY, Sept 22 (Reuters) - Mexico's economy ministry approved on Wednesday a quota to import 100,000 tonnes of sugar to help stabilize prices amid a shortage caused by bad weather hurting cane fields.
• The import quota would be the second opened this year in Mexico, which generally produces enough sugar to cover domestic needs and some exports. But now the country is reeling from two straight years of lower-than-expected harvests from aging cane fields with lower yields and bad weather.
September European flash PMIs were released today. Markit's Eurozone Flash Services Purchasing Manager's Index is made up of surveys of around 2,000 businesses, and basically asks them how their businesses are faring. The reading fell to 53.6 in September from 55.9 in August. This was the survey's lowest reading since February and clearly shows the declining trend. Europeans stock markets were clearly lower today.
The most worrisome was notable drop in German reading which is significantly below the high reached in summer. Germany had been more or less the lone brightspot in global manufacturing over the summer in maintaining accelerating growth. It seems like that has clearly come to an end. It is possible significant strengthening in Euro since early June is finally having its impact on German exports.
I expect US stocks to outperform Europeans stocks and USD to strengthen versus EUR in Q4 as sentiment catches up to Europe’s reality.
In US, weekly initial jobless claims came in on a disappointing side while existing home sales registered a mild positive surprise in growth from the dismal number the month before.
Tomorrow we will see German IFO survey (business sentiment). If we see a large slip here then I can feel more confidence that European slowdown is going to unfold in full force come October. US August durable goods orders would give us a good indication of how true the upbeat August ISM number was. If this doesn’t come in good I think we have a reason to believe that we were fooled in September on inaccurate data.
On stocks and corporate credit:
The lone bright spot in the US economy has been the strength in the corporate sector (banks excluded) where we have seen a strong rebound in profits and extremely cash-loaded balance sheets.
Corporate cash hoarding so far has benefitted corporate bond investors who as a group have no other want other than the companies to not default. Bond holders tend to object to business spending, dividends or stock buybacks. Obviously it’s hard to default on debt if you have a ton of cash on hand. Corporate bonds have rallied hard lately on both risk aversion and falling treasury yields.
We are starting to see the sign that some of the excess cash might be getting deployed. M&A is picking up in a big way and dividends are starting to rise. Both are tailwinds for stock investors. One could argue that for the broad economy the cash would be better spent on hiring, but companies refuse to do so based on uncertain economic picture. Hence recovery in employment is kept muted which feeds into weak consumer confidence. It has been a bad cycle. We will see if we can break out of it in the next couple quarters.
Outlook and sentiment vary greatly among companies based on their size. Larger companies with significant international presence are relatively upbeat while smaller businesses with limited geographic footprint and limited access to credit are suffering. This is why we are more heavily weighted in megacap stocks in our equity holdings. We see this as a continuing theme in US.
On precious metals:
Gold is knocking on the $1,300 mark again today and I expect this to be breached before October. We have seen a remarkable run in gold and silver since early August. While I do not see an up 5% month to be a norm going forward, I believe the economic and financial environment remains very bullish for precious metals. Emerging market central bank purchases, private sector investment, opening up of Chinese gold market, and additional quantitative easing around the world all provide favorable backdrop to continue the rally.
On industrial metals:
Copper continues to creep higher as LME inventory continues to fall (in a stark contrast versus crude oil). Copper is up 21% since July while SP500 is up 9%. Copper is benefitting from robust emerging market demand especially from China – more on that tomorrow. I continue to believe that industrial metals are better place to be than energy in next 3 months.
On the agricultural front:
Russia is expected to increase imports throughout 2011 amidst the shortfall following this summer's drought and wildfires. Russia, typically a net exporter, will have to import nearly 6 million tons of grains, according to SovEcon. The Moscow based research firm also believes that the government's official supply estimate of 90 million tons is grossly overstated and is expected to only be between 77 and 81 million tons. This should keep pressure on grain prices in the upcoming year as more countries will rely on the US, Canada and Australia to provide the world's grain.
Prices of Robusta coffee have risen to their highest prices in a month on concerns that there will be issues with the harvest in Vietnam. Vietnam often has issues in getting coffee to port due to poor infrastructure and poor husbandry. Demand for Robusta coffee, used in instant coffees, is expected to rise due to an increase in the price of higher quality Arabica coffee. As prices for the high quality coffee rise, consumers naturally switch to the cheaper priced coffee. Continued issues with the weather in Brazil have increased prices to historical levels. Many roasters who are not fully hedged will now turn to the Robusta coffee as a way to cut costs.
Australia sugar areas set for wet December qtr
• SYDNEY, Sept 23 (Reuters) - Above-average rain is forecast for much of eastern Australia through the end of the year, threatening to disrupt the sugar harvest and new crop planting but boding well for summer crops such as cotton.
• Australia's northern sugar and cotton growing regions and eastern grain growing regions are all expected to record above-average rain in the last three months of the year as the La Nina weather event intensifies, Australia's weather bureau said on Thursday.
Mexico opens sugar quota to cover demand
• MEXICO CITY, Sept 22 (Reuters) - Mexico's economy ministry approved on Wednesday a quota to import 100,000 tonnes of sugar to help stabilize prices amid a shortage caused by bad weather hurting cane fields.
• The import quota would be the second opened this year in Mexico, which generally produces enough sugar to cover domestic needs and some exports. But now the country is reeling from two straight years of lower-than-expected harvests from aging cane fields with lower yields and bad weather.
Wednesday, September 22, 2010
2010 09 22
Another very slow day in terms of newsflow.
It seems like the ramification of probable US QE is still working its way through the market.
Gold continues to surge and bonds are being bid up. US dollar continues to slide versus most currencies.
In the middle of all this what’s being missed is the action around silver.
Since end of April when markets started tanking, silver is up 13%. During the same period gold is up 9% and SP500 is down 4%.
Silver has benefitted lately on two fronts:
Much better than expected manufacturing data out of US and China on Sep 1 are what kickstarted this Sep rally. Silver, unlike gold, derives huge part of its demand from manufacturing and industrial activities – around 60% of total demand. Better than expected manufacturing activities are restoring faith in silver. We believe that while the peak in manufacturing activities was reached earlier this year, they will continue to remain in expansionary territory (i.e. it would not fall into “recession”) for the foreseeable future. This will lend support to silver.
Gold has pierced through its all-time high and continues to march higher. There are many investors who feel like gold may be overvalued at this point and are reluctant to jump onboard. These people tend to look to silver which is still about 40% below its all time high.
Until 2006, gold’s previous all time nominal (not inflation adjusted) high was $667 in Sep 1980. Silver’s all time nominal high still rests at $35 back in Feb 1980. Silver trades at $21 today. Jim Rogers put it succinctly : one is at all time high and one is well below its all time high. Which is a better value?
Tomorrow would be a big day. September flash PMI data comes out across the Euroland. It would be very interesting to see if Germany can continue to hold up. My guess is that Germany would be ok through this month but show slowdown starting Oct.
And of course US weekly initial jobless claims. I expect it to stay at an elevated level around 440-450k.
Without further good news the stock market rally we have seen this month could very well slip from here.
It seems like the ramification of probable US QE is still working its way through the market.
Gold continues to surge and bonds are being bid up. US dollar continues to slide versus most currencies.
In the middle of all this what’s being missed is the action around silver.
Since end of April when markets started tanking, silver is up 13%. During the same period gold is up 9% and SP500 is down 4%.
Silver has benefitted lately on two fronts:
Much better than expected manufacturing data out of US and China on Sep 1 are what kickstarted this Sep rally. Silver, unlike gold, derives huge part of its demand from manufacturing and industrial activities – around 60% of total demand. Better than expected manufacturing activities are restoring faith in silver. We believe that while the peak in manufacturing activities was reached earlier this year, they will continue to remain in expansionary territory (i.e. it would not fall into “recession”) for the foreseeable future. This will lend support to silver.
Gold has pierced through its all-time high and continues to march higher. There are many investors who feel like gold may be overvalued at this point and are reluctant to jump onboard. These people tend to look to silver which is still about 40% below its all time high.
Until 2006, gold’s previous all time nominal (not inflation adjusted) high was $667 in Sep 1980. Silver’s all time nominal high still rests at $35 back in Feb 1980. Silver trades at $21 today. Jim Rogers put it succinctly : one is at all time high and one is well below its all time high. Which is a better value?
Tomorrow would be a big day. September flash PMI data comes out across the Euroland. It would be very interesting to see if Germany can continue to hold up. My guess is that Germany would be ok through this month but show slowdown starting Oct.
And of course US weekly initial jobless claims. I expect it to stay at an elevated level around 440-450k.
Without further good news the stock market rally we have seen this month could very well slip from here.
Tuesday, September 21, 2010
2010 09 21
A fairly quiet day on a no real new news.
FOMC did not quite deliver explicit message they’re about to embark on additional QE of buying up government securities, but they reiterated a very dovish tone. This is what I had expected as I wrote yesterday – given some upside surprises we saw this month the Fed can afford to wait until next month.
The dovish tone was enough however to push long bonds up and dollar down. As you can expect gold had a big up day now right at 1290 mark.
WTI had a fairly bad day down 2% today on expectation of low refinery utilization and continual build-up in inventory.
Crude has decoupled from stock market this month. The fundamentals have caught up. Connor and I had a brief discussion on crude. I think it’s stuck in range 72-77.
Meanwhile, the Chinese commodity imports data just came out for August. At a glance it seems like the demand is picking back up especially for metals.
China refined copper imports rise 18.9 pct in Aug
• China's imports of refined copper rose 18.9 percent in August from a month earlier, up for a second straight month, as importers received more metal ahead of the peak consumption season in the fourth quarter.
• The world's top copper consumer imported 267,153 tonnes of refined copper in August, up from July's 224,723 tonnes, data from the General Administration of Customs showed on Tuesday.
FOMC did not quite deliver explicit message they’re about to embark on additional QE of buying up government securities, but they reiterated a very dovish tone. This is what I had expected as I wrote yesterday – given some upside surprises we saw this month the Fed can afford to wait until next month.
The dovish tone was enough however to push long bonds up and dollar down. As you can expect gold had a big up day now right at 1290 mark.
WTI had a fairly bad day down 2% today on expectation of low refinery utilization and continual build-up in inventory.
Crude has decoupled from stock market this month. The fundamentals have caught up. Connor and I had a brief discussion on crude. I think it’s stuck in range 72-77.
Meanwhile, the Chinese commodity imports data just came out for August. At a glance it seems like the demand is picking back up especially for metals.
China refined copper imports rise 18.9 pct in Aug
• China's imports of refined copper rose 18.9 percent in August from a month earlier, up for a second straight month, as importers received more metal ahead of the peak consumption season in the fourth quarter.
• The world's top copper consumer imported 267,153 tonnes of refined copper in August, up from July's 224,723 tonnes, data from the General Administration of Customs showed on Tuesday.
Monday, September 20, 2010
2010 09 20
No real noteworthy economic news today.
Stocks push higher yet again on no substantial economic news. It’s possible additional news of M&A out of the tech sector (IBM) is providing positive sentiment.
Treasuries, commodities and gold all higher as well. Bunds flat to slightly lower. USD seems to be only asset down today perhaps the market is putting a lot of faith that FOMC would announce more QE measures tomorrow.
Fears that the US economy is headed into a “double dip” have eased a bit as data surprises have swung to the upside. September has been dominated by upside surprises on data ranging from the ISM manufacturing index to payrolls and from the trade balance to retail sales. This stands in sharp contrast to the experience of July and August. No doubt this has led to a huge rally we have seen in August.
The BoJ intervention appears to be working so far – JPY hovering right around 85.5- 85.9 level yet. I still believe BoJ’s effort to push down yen would be successful in the longer run due to : (1) persistent trade surplus (2) lack of carry trade around the world (3) speculators’ desire to test BoJ (4) lingering possibility of deteriorating US and European economies. However, I would wait longer before jumping to go long yen. The intervention has just begun and it could last months (last time BoJ tried to intervene it was from around March 2003 – March 2004).
Tomorrow:
Australia RBA minutes – I think going long AUD might be a good trade their economy is doing well and Asia continues to power ahead. This could increase pressure to raise rates and give some boost to AUD. If I were to go long AUD I would probably do it against NZD rather than USD as to reduce exposure to investor sentiment swings.
US housing starts – probably bad. But I do not think the US housing news impacts the markets any more. Everyone knows this market is dead.
US FOMC meeting – everyone seems to expect news of further QE. I think this expectation is too high given the upside surprise we have seen this month but QE is probably very likely coming sometime this year.
Global stainless steel output jumps 44 pct in H1 2010
• Global stainless steel production rose more than 40 percent in the first half of this year on the back of strong restocking as the global economy slowly recovered after 2009's recession. This can explain nickel’s huge outperformance (+25% ytd) over other metals (copper +5% ally -2%)
• Total stainless steel crude production rose to 15.6 million tonnes, rising 44.3 percent compared with the first half of 2009, preliminary figures from the Brussels-based International Stainless Steel Forum (ISSF) showed on Monday.
Stocks push higher yet again on no substantial economic news. It’s possible additional news of M&A out of the tech sector (IBM) is providing positive sentiment.
Treasuries, commodities and gold all higher as well. Bunds flat to slightly lower. USD seems to be only asset down today perhaps the market is putting a lot of faith that FOMC would announce more QE measures tomorrow.
Fears that the US economy is headed into a “double dip” have eased a bit as data surprises have swung to the upside. September has been dominated by upside surprises on data ranging from the ISM manufacturing index to payrolls and from the trade balance to retail sales. This stands in sharp contrast to the experience of July and August. No doubt this has led to a huge rally we have seen in August.
The BoJ intervention appears to be working so far – JPY hovering right around 85.5- 85.9 level yet. I still believe BoJ’s effort to push down yen would be successful in the longer run due to : (1) persistent trade surplus (2) lack of carry trade around the world (3) speculators’ desire to test BoJ (4) lingering possibility of deteriorating US and European economies. However, I would wait longer before jumping to go long yen. The intervention has just begun and it could last months (last time BoJ tried to intervene it was from around March 2003 – March 2004).
Tomorrow:
Australia RBA minutes – I think going long AUD might be a good trade their economy is doing well and Asia continues to power ahead. This could increase pressure to raise rates and give some boost to AUD. If I were to go long AUD I would probably do it against NZD rather than USD as to reduce exposure to investor sentiment swings.
US housing starts – probably bad. But I do not think the US housing news impacts the markets any more. Everyone knows this market is dead.
US FOMC meeting – everyone seems to expect news of further QE. I think this expectation is too high given the upside surprise we have seen this month but QE is probably very likely coming sometime this year.
Global stainless steel output jumps 44 pct in H1 2010
• Global stainless steel production rose more than 40 percent in the first half of this year on the back of strong restocking as the global economy slowly recovered after 2009's recession. This can explain nickel’s huge outperformance (+25% ytd) over other metals (copper +5% ally -2%)
• Total stainless steel crude production rose to 15.6 million tonnes, rising 44.3 percent compared with the first half of 2009, preliminary figures from the Brussels-based International Stainless Steel Forum (ISSF) showed on Monday.
Thursday, September 16, 2010
2010 09 16
Quiet day in the market
Most notable is oil where the news of Enbridge reopening the pipeline is pushing the price lower.
Gold continues to perform well.
This is going to be very range bound market driven by sentiments that would continue to over and undershoot reality.
Economic data show that we are right on the line between recovery and recession.
Inflation data show that we are right on the line between inflation and deflation.
The only asset I would hold naked long now is gold. And maybe some ags depending on their own micro drivers. Relative value and tactical trades would be key.
Japan manufacturing sentiment rapidly falling apart
• Japanese manufacturing confidence worsened in September from the previous month for the first time in nearly a year as companies struggle with a persistent yen rise that threatens a fragile, export-reliant economic recovery, a Reuters poll showed.
• There were numerous comments that (1) profitability has declined on dollar-denominated contracts due to yen strength, (2) incoming order growth is sluggish, and (3) the sense of recovery in the market has stalled. Moreover, the December outlook deteriorated to +2, 15 points down on the current outlook of +17, marking the largest deterioration since the survey was started in 1998.
U.K. Retail Sales Post Surprise Fall, manufacturing orders are weakening and job market continues to falter
• U.K. retail sales fell unexpectedly and sharply in August, reflecting consumers' concerns about government spending cuts and a reversal in the job market.
• The volume of retail sales dropped 0.5% from July, the first decrease since January, and the annual rate of growth slowed to 0.4%, the government statistics office said. The agency observed a broad-based decline across both food and nonfood stores.
• The result, together with other news Thursday of contracting order bookings among U.K. manufacturers, added to evidence that Britain's economic recovery is losing pace in the second half of the year.
• The faltering recovery is in line with that of the 16-nation euro zone, where only Germany is bucking the trend with robust growth, led by exporters and consumers.
Switzerland keeps interest rate stable and cuts inflation outlook. No comment on strength of CHF
• SNB kept interest rate the same and made some dovish comments like all the other central banks do (we are concerned about global recovery…)
• SNB also stated that domestic recovery was much more powerful than expected but it is likely to slow down substantially due to strength of CHF and slowdown in global economy.
US weekly jobless claims falls more than expected. A minor sigh of relief
• Claims for the week to September 11 fell to 450,000, down 3,000 from the previous week's revised figure, bringing them to their lowest level since May.
• The latest figure was better than most economists' expectations of 460,000 new claims, adding to a string of positive indicators in recent weeks that bolstered optimism about the recovery.
• Still, 450,000 is a DISMAL number given that we’re supposed to be a year into an economic recovery.
US PPI remains at rock bottom
• U.S. producer prices rose for the second month in a row in August at 0.4% as energy costs increased.
• Still, the government report showed that underlying inflation pressures remain very low. Stripping out more-volatile food and energy prices, producer prices rose by just 0.1%.
Philly Fed manufacturing survey weak for second month in a row
• Manufacturing activity in the Philadelphia region has stalled as the survey released Thursday by the Philadelphia Federal Reserve shows the second month of declining new orders and shipments.
• The report covers businesses in the third federal district, which encompasses eastern Pennsylvania, southern New Jersey and Delaware.
Tomorrow:
US CPI
US U of Michigan consumer confidence
Neither likely to be much of a market driver
Most notable is oil where the news of Enbridge reopening the pipeline is pushing the price lower.
Gold continues to perform well.
This is going to be very range bound market driven by sentiments that would continue to over and undershoot reality.
Economic data show that we are right on the line between recovery and recession.
Inflation data show that we are right on the line between inflation and deflation.
The only asset I would hold naked long now is gold. And maybe some ags depending on their own micro drivers. Relative value and tactical trades would be key.
Japan manufacturing sentiment rapidly falling apart
• Japanese manufacturing confidence worsened in September from the previous month for the first time in nearly a year as companies struggle with a persistent yen rise that threatens a fragile, export-reliant economic recovery, a Reuters poll showed.
• There were numerous comments that (1) profitability has declined on dollar-denominated contracts due to yen strength, (2) incoming order growth is sluggish, and (3) the sense of recovery in the market has stalled. Moreover, the December outlook deteriorated to +2, 15 points down on the current outlook of +17, marking the largest deterioration since the survey was started in 1998.
U.K. Retail Sales Post Surprise Fall, manufacturing orders are weakening and job market continues to falter
• U.K. retail sales fell unexpectedly and sharply in August, reflecting consumers' concerns about government spending cuts and a reversal in the job market.
• The volume of retail sales dropped 0.5% from July, the first decrease since January, and the annual rate of growth slowed to 0.4%, the government statistics office said. The agency observed a broad-based decline across both food and nonfood stores.
• The result, together with other news Thursday of contracting order bookings among U.K. manufacturers, added to evidence that Britain's economic recovery is losing pace in the second half of the year.
• The faltering recovery is in line with that of the 16-nation euro zone, where only Germany is bucking the trend with robust growth, led by exporters and consumers.
Switzerland keeps interest rate stable and cuts inflation outlook. No comment on strength of CHF
• SNB kept interest rate the same and made some dovish comments like all the other central banks do (we are concerned about global recovery…)
• SNB also stated that domestic recovery was much more powerful than expected but it is likely to slow down substantially due to strength of CHF and slowdown in global economy.
US weekly jobless claims falls more than expected. A minor sigh of relief
• Claims for the week to September 11 fell to 450,000, down 3,000 from the previous week's revised figure, bringing them to their lowest level since May.
• The latest figure was better than most economists' expectations of 460,000 new claims, adding to a string of positive indicators in recent weeks that bolstered optimism about the recovery.
• Still, 450,000 is a DISMAL number given that we’re supposed to be a year into an economic recovery.
US PPI remains at rock bottom
• U.S. producer prices rose for the second month in a row in August at 0.4% as energy costs increased.
• Still, the government report showed that underlying inflation pressures remain very low. Stripping out more-volatile food and energy prices, producer prices rose by just 0.1%.
Philly Fed manufacturing survey weak for second month in a row
• Manufacturing activity in the Philadelphia region has stalled as the survey released Thursday by the Philadelphia Federal Reserve shows the second month of declining new orders and shipments.
• The report covers businesses in the third federal district, which encompasses eastern Pennsylvania, southern New Jersey and Delaware.
Tomorrow:
US CPI
US U of Michigan consumer confidence
Neither likely to be much of a market driver
Wednesday, September 15, 2010
2010 09 15
Very quiet day except two assets:
Oil pulled back on the news the broken pipeline might be repaired and would be ready to resume service soon.
Yen weakened significantly on official BoJ intervention.
Otherwise no action in stocks, commodities or currencies.
We saw some sell offs in bonds and bunds especially on long ends but it is merely reversing all of yesterday’s inexplicable strengthening. Sometimes (or often???) there is no real logic behind price moves. Prices just move around.
I would advocate taking some profits on positions that rose the most this month after the initial jobless claims number tomorrow – before the weekend
UK unemployment holds steady – upcoming spending cuts stokes concern
• The number of people unemployed in the UK fell by 8,000 to 2.47 million in the three months to July. This is less than drop of 40,000 that was expecte.
• However, the figures also showed the claimant count - those out of work and receiving unemployment benefit - rose by 2,300 in August to 1.47 million.
• UK is in similar situation as US – unemployment that is stuck at high rate that seems to be getting worse. The main fear is that as spending cuts take effect unemployment can rise sharply.
US industrial production slowed a bit in August from July
• U.S. industrial production rose 0.2% in August, a slower pace than the downwardly revised 0.6% in July. Economists had forecast of 0.1% increase in August industrial production.
• This piece of good news helped offset weaker than expected Empire state manufacturing survey
• It was not a great news, but good enough to hold up the market. This marks 14th straight months of industrial activity growth which remains the bedrock of economic recovery. It will be a scary scenario if manufacturing begins to slip as inventory build reaches normal level.
Oil falls 2nd day as U.S. pipeline seen restarting
• SINGAPORE, Sept 15 (Reuters) - Oil fell for a second day as Enbridge prepared to restart the biggest Canada-U.S. crude pipeline, raising expectations of a short-lived shutdown that would limit the drainage of record-high inventories.
• "This situation has been priced in, so now that it is going to restart earlier than expected, prices have re-adjusted, causing the prompt WTI price to weaken much more than Brent," said Serene Lim, a Singapore-based oil analyst at ANZ.
Tomorrow:
Japan Tankan business survey
UK retail sales
Switzerland SNB meeting (would be interesting to see if they comment on CHF probably not as their economy is holding up just fine)
US initial jobless claims
US Philly fed survey
Oil pulled back on the news the broken pipeline might be repaired and would be ready to resume service soon.
Yen weakened significantly on official BoJ intervention.
Otherwise no action in stocks, commodities or currencies.
We saw some sell offs in bonds and bunds especially on long ends but it is merely reversing all of yesterday’s inexplicable strengthening. Sometimes (or often???) there is no real logic behind price moves. Prices just move around.
I would advocate taking some profits on positions that rose the most this month after the initial jobless claims number tomorrow – before the weekend
UK unemployment holds steady – upcoming spending cuts stokes concern
• The number of people unemployed in the UK fell by 8,000 to 2.47 million in the three months to July. This is less than drop of 40,000 that was expecte.
• However, the figures also showed the claimant count - those out of work and receiving unemployment benefit - rose by 2,300 in August to 1.47 million.
• UK is in similar situation as US – unemployment that is stuck at high rate that seems to be getting worse. The main fear is that as spending cuts take effect unemployment can rise sharply.
US industrial production slowed a bit in August from July
• U.S. industrial production rose 0.2% in August, a slower pace than the downwardly revised 0.6% in July. Economists had forecast of 0.1% increase in August industrial production.
• This piece of good news helped offset weaker than expected Empire state manufacturing survey
• It was not a great news, but good enough to hold up the market. This marks 14th straight months of industrial activity growth which remains the bedrock of economic recovery. It will be a scary scenario if manufacturing begins to slip as inventory build reaches normal level.
Oil falls 2nd day as U.S. pipeline seen restarting
• SINGAPORE, Sept 15 (Reuters) - Oil fell for a second day as Enbridge prepared to restart the biggest Canada-U.S. crude pipeline, raising expectations of a short-lived shutdown that would limit the drainage of record-high inventories.
• "This situation has been priced in, so now that it is going to restart earlier than expected, prices have re-adjusted, causing the prompt WTI price to weaken much more than Brent," said Serene Lim, a Singapore-based oil analyst at ANZ.
Tomorrow:
Japan Tankan business survey
UK retail sales
Switzerland SNB meeting (would be interesting to see if they comment on CHF probably not as their economy is holding up just fine)
US initial jobless claims
US Philly fed survey
Tuesday, September 14, 2010
2010 09 14
The biggest economic news today was largely as expected. Retail sales remains anemic but it’s yet another piece of confirmation that we are not in contraction territory.
In terms of news moving the market it was the result of Japanese election – incumbent prime minister Kan won the party election beating his challenger who was widely believed to be likely to prod BoJ to intervene and weaken the currency. This news pushed Yen even stronger. I have said before that there is nothing BoJ could do even if it wanted to weaken the Yen. It tried once before in 2004 and it was useless. The currency market is too big even for the government. If anything government intervention was seen as sign of weakness and only emboldens speculators. Look at what’s happening to CHF.
It has been a very quiet month for currencies. The biggest move MTD has been in AUD and it has only moved 0.19% against USD.
We also saw sharp advance in gold and bonds (and bunds). News media reports as safe haven buying. Well, it seems odd to me why all of a sudden there is a huge spike in demand for gold and bonds especially today when there is no obvious bad news and stocks and commodities are flat.
I still like gold a lot – macro backdrop is perfect for this asset.
Actually, what has really been racing ahead is silver. Silver was at $18 at the end of July. Today it’s at $20.44.
U.K. Housing Gauge Falls to Lowest Since May 2009
• The housing recovery may be faltering as the prospect of the biggest spending squeeze since World War II deters buyers and banks restrict access to credit.
UK inflation holds steady – higher than expected
• The Office for National Statistics said consumer price inflation came in at 3.1 percent last month in contrast to economists' expectations for a fall to 2.9 percent.
US august retail sales – isn’t good but it is still growing
• Retail sales rose 0.4% on the month, the Commerce Department said. It marked the second straight increase and was the largest gain since March. Excluding autos, August's sales rose 0.6%.
Tomorrow shapes up to be a big day with Euroland Aug CPI and US Aug industrial production and capacity utilization as well as Empire manufacturing survey. The market took off on a huge rally this month primarily on much better than expected PMI number. If these other manufacturing indicators disappoint that would cast a serious doubt that US industrial activities are on a stable footing.
In terms of news moving the market it was the result of Japanese election – incumbent prime minister Kan won the party election beating his challenger who was widely believed to be likely to prod BoJ to intervene and weaken the currency. This news pushed Yen even stronger. I have said before that there is nothing BoJ could do even if it wanted to weaken the Yen. It tried once before in 2004 and it was useless. The currency market is too big even for the government. If anything government intervention was seen as sign of weakness and only emboldens speculators. Look at what’s happening to CHF.
It has been a very quiet month for currencies. The biggest move MTD has been in AUD and it has only moved 0.19% against USD.
We also saw sharp advance in gold and bonds (and bunds). News media reports as safe haven buying. Well, it seems odd to me why all of a sudden there is a huge spike in demand for gold and bonds especially today when there is no obvious bad news and stocks and commodities are flat.
I still like gold a lot – macro backdrop is perfect for this asset.
Actually, what has really been racing ahead is silver. Silver was at $18 at the end of July. Today it’s at $20.44.
U.K. Housing Gauge Falls to Lowest Since May 2009
• The housing recovery may be faltering as the prospect of the biggest spending squeeze since World War II deters buyers and banks restrict access to credit.
UK inflation holds steady – higher than expected
• The Office for National Statistics said consumer price inflation came in at 3.1 percent last month in contrast to economists' expectations for a fall to 2.9 percent.
US august retail sales – isn’t good but it is still growing
• Retail sales rose 0.4% on the month, the Commerce Department said. It marked the second straight increase and was the largest gain since March. Excluding autos, August's sales rose 0.6%.
Tomorrow shapes up to be a big day with Euroland Aug CPI and US Aug industrial production and capacity utilization as well as Empire manufacturing survey. The market took off on a huge rally this month primarily on much better than expected PMI number. If these other manufacturing indicators disappoint that would cast a serious doubt that US industrial activities are on a stable footing.
Monday, September 13, 2010
2010 09 13
Stocks and commodities drifted higher on a day with no major economic news.
Quite possibly the bulls were stoked by new global banking regulations that were far less stringent than many feared. Capital requirements are not very high and banks will have 8 years to comply.
The news that Microsoft will issue debt to pay out dividends helped Nasdaq soar.
Otherwise, China released an assuring news that its august Industrial production rebounded from July, handily beating estimates. This helped industrial metals and copper gain in particular. China also reported better than expected retail sales number for August as well. Seems to me like China has succeeded in managing a soft landing.
On the bonds side, much better than expected budget deficit in US in August helped fuel a huge rally in US treasuries. I reckon even at this rock bottom yield there are people who are scared of default. Thankfully bunds are not moving much.
Basically, the news of the past couple weeks paint the picture that while things are bad, it is not dismal. It has been a very nice run with SP500 up nearly 7% MTD. Could this be one of those months where cutting exposure in second half would pay off?
Tomorrow is shaping up to be more interesting with UK CPI (should affect gilts and GBP) and US retail sales reported.
China majors' fuel stocks down sixth month in row
• Combined inventories of gasoline, diesel and kerosene held by China's top two oil firms were down 6.4 percent in August versus July, the sixth monthly decline, due to robust domestic sales and exports, an industry official said on Monday.
• Diesel stocks held by Sinopec Corp and PetroChina were down a sharp 8.2 percent last month from July, while that of gasoline dropped 2.8 percent, said the official who has knowledge of the data but is not authorised to release them.
India oil product exports may double in 3 yrs
• India's petroleum products exports could reach 80-90 million tonnes per year in 2-3 years, from nearly 40 million tonnes currently, Oil Secretary S. Sundareshan told reporters on Saturday.
• India's product exports were 4.79 million tonnes in July, up from 4.09 million tonnes in June, latest government data show.
U.S. Midwest weather outlook unfavorable for crops
• Corn and soybean crops in the U.S. Midwest face a week of mixed weather with scattered showers forecast from Tuesday through to Friday, a forecaster said on Monday.
• "Wet weather in the western Midwest during the next seven days is unfavourable for maturing corn and soybeans and the early harvest," said Mike Palmerino, agricultural meteorologist with Telvent-DTN Weather.
Quite possibly the bulls were stoked by new global banking regulations that were far less stringent than many feared. Capital requirements are not very high and banks will have 8 years to comply.
The news that Microsoft will issue debt to pay out dividends helped Nasdaq soar.
Otherwise, China released an assuring news that its august Industrial production rebounded from July, handily beating estimates. This helped industrial metals and copper gain in particular. China also reported better than expected retail sales number for August as well. Seems to me like China has succeeded in managing a soft landing.
On the bonds side, much better than expected budget deficit in US in August helped fuel a huge rally in US treasuries. I reckon even at this rock bottom yield there are people who are scared of default. Thankfully bunds are not moving much.
Basically, the news of the past couple weeks paint the picture that while things are bad, it is not dismal. It has been a very nice run with SP500 up nearly 7% MTD. Could this be one of those months where cutting exposure in second half would pay off?
Tomorrow is shaping up to be more interesting with UK CPI (should affect gilts and GBP) and US retail sales reported.
China majors' fuel stocks down sixth month in row
• Combined inventories of gasoline, diesel and kerosene held by China's top two oil firms were down 6.4 percent in August versus July, the sixth monthly decline, due to robust domestic sales and exports, an industry official said on Monday.
• Diesel stocks held by Sinopec Corp and PetroChina were down a sharp 8.2 percent last month from July, while that of gasoline dropped 2.8 percent, said the official who has knowledge of the data but is not authorised to release them.
India oil product exports may double in 3 yrs
• India's petroleum products exports could reach 80-90 million tonnes per year in 2-3 years, from nearly 40 million tonnes currently, Oil Secretary S. Sundareshan told reporters on Saturday.
• India's product exports were 4.79 million tonnes in July, up from 4.09 million tonnes in June, latest government data show.
U.S. Midwest weather outlook unfavorable for crops
• Corn and soybean crops in the U.S. Midwest face a week of mixed weather with scattered showers forecast from Tuesday through to Friday, a forecaster said on Monday.
• "Wet weather in the western Midwest during the next seven days is unfavourable for maturing corn and soybeans and the early harvest," said Mike Palmerino, agricultural meteorologist with Telvent-DTN Weather.
Friday, September 10, 2010
2010 09 10
Another slow day in terms of markets news. The biggest news probably was that of Canadian oil line shut down that send crude futures rise almost 3%.
Next week should get more interesting with US retail sales data on Tues, August industrial production data on Wed and CPI data on Friday . Europe will release its industrial production on Tues and inflation data on Wed.
Stock market continues to drift higher on little news. This week has been good for energy but mainly due to today’s news. Metals, Ags are flat. Currencies didn’t move anywhere. Bonds yields have risen both in US and Europe.
Australia continues to go strong on EM exposure
• Australia's job market keeps growing, adding 30,900 jobs in August, driving the unemployment rate down to 5.1%.
• Strong job numbers are fueling speculation that RBA would need to hike rates but given the weakness in housing and low inflation are putting downward pressure on rates. But at this point the market seems to be pricing in near certain rate hike in the next meeting in Oct.
• Despite all the swings, no currency has moved all that much. In the past 3 months AUD is the only G10 currency that strengthened more than 1% versus USD. Everything else has been basically flat.
More good news out of Europe, France
• July French Industrial production climbed faster than expected as companies started putting more money into investments.
• Investment by French companies increased in the second quarter for the first time in two years, driving a 0.6 percent gain in gross domestic product. While companies may maintain investment to boost productivity, the pace of economic expansion may be curbed by government efforts to reduce the budget deficit and a cooling global economy.
• It remains to be seen whether corporate investments can overcome sluggish customers and government austerity measures. My guess is no. However, relatively strong European data continues.
UK PPI fell to 6 months low
• Falling oil prices weighed more than rising food prices.
• Input prices for materials and fuels purchased by manufacturers rose 8.1% in the year to August but fell 0.5% between July and August. The monthly drop also reflected falls in the price of crude oil which countered a 1.4% rise in the price of home produced food products – mainly due to higher wheat prices.
China – export falls, import rises
• Good news – rising imports suggest Chinese economic slowdown might be less severe than expected
• Bad news – does lower export mean weakening global demand?
• I don’t think weakening global demand is much of news as everyone expects pretty noticeable slowdown in Q3 and Q4 especially from US and Europe. I think the more important news is on the import side. As I have stated before I do not believe things are as bad in China as many fear. Commodity imports for instance remains very strong.
Enbridge shuts major Canada-US oil line due to leak
• CALGARY, Alberta, Sept 9 (Reuters) - Enbridge Inc shut down the largest of its three major oil pipelines on Thursday, reducing supply on the main transit route for Canadian crude into the United States.
• The incident, just six weeks after Enbridge was forced to shut a smaller part of its Lakehead system, pushed prompt crude futures towards $75 as it may ease a glut at the Cushing, Oklahoma delivery point for U.S. crude futures.
China crude imports rebound, new refineries open
• BEIJING, Sept 10 (Reuters) - China imported 13 percent more crude oil in August over a year earlier, in a strong rebound after a pullback the previous month, as firms start new refineries amid stronger-than-expected fuel demand.
• China brought in 20.9 million tonnes of crude last month, or 4.92 million barrels per day (bpd), 450,000 bpd higher than July when imports dipped for the first time in 16 months, the General Administration of Customs said on its website
Next week should get more interesting with US retail sales data on Tues, August industrial production data on Wed and CPI data on Friday . Europe will release its industrial production on Tues and inflation data on Wed.
Stock market continues to drift higher on little news. This week has been good for energy but mainly due to today’s news. Metals, Ags are flat. Currencies didn’t move anywhere. Bonds yields have risen both in US and Europe.
Australia continues to go strong on EM exposure
• Australia's job market keeps growing, adding 30,900 jobs in August, driving the unemployment rate down to 5.1%.
• Strong job numbers are fueling speculation that RBA would need to hike rates but given the weakness in housing and low inflation are putting downward pressure on rates. But at this point the market seems to be pricing in near certain rate hike in the next meeting in Oct.
• Despite all the swings, no currency has moved all that much. In the past 3 months AUD is the only G10 currency that strengthened more than 1% versus USD. Everything else has been basically flat.
More good news out of Europe, France
• July French Industrial production climbed faster than expected as companies started putting more money into investments.
• Investment by French companies increased in the second quarter for the first time in two years, driving a 0.6 percent gain in gross domestic product. While companies may maintain investment to boost productivity, the pace of economic expansion may be curbed by government efforts to reduce the budget deficit and a cooling global economy.
• It remains to be seen whether corporate investments can overcome sluggish customers and government austerity measures. My guess is no. However, relatively strong European data continues.
UK PPI fell to 6 months low
• Falling oil prices weighed more than rising food prices.
• Input prices for materials and fuels purchased by manufacturers rose 8.1% in the year to August but fell 0.5% between July and August. The monthly drop also reflected falls in the price of crude oil which countered a 1.4% rise in the price of home produced food products – mainly due to higher wheat prices.
China – export falls, import rises
• Good news – rising imports suggest Chinese economic slowdown might be less severe than expected
• Bad news – does lower export mean weakening global demand?
• I don’t think weakening global demand is much of news as everyone expects pretty noticeable slowdown in Q3 and Q4 especially from US and Europe. I think the more important news is on the import side. As I have stated before I do not believe things are as bad in China as many fear. Commodity imports for instance remains very strong.
Enbridge shuts major Canada-US oil line due to leak
• CALGARY, Alberta, Sept 9 (Reuters) - Enbridge Inc shut down the largest of its three major oil pipelines on Thursday, reducing supply on the main transit route for Canadian crude into the United States.
• The incident, just six weeks after Enbridge was forced to shut a smaller part of its Lakehead system, pushed prompt crude futures towards $75 as it may ease a glut at the Cushing, Oklahoma delivery point for U.S. crude futures.
China crude imports rebound, new refineries open
• BEIJING, Sept 10 (Reuters) - China imported 13 percent more crude oil in August over a year earlier, in a strong rebound after a pullback the previous month, as firms start new refineries amid stronger-than-expected fuel demand.
• China brought in 20.9 million tonnes of crude last month, or 4.92 million barrels per day (bpd), 450,000 bpd higher than July when imports dipped for the first time in 16 months, the General Administration of Customs said on its website
2010 09 09
This short week has been short on major economic news. Stock market has been drifting higher.
If anything the biggest news has been possible Chinese investigation into speculative trading in commodities. Spreading rumors and fears are affecting many commodities, particularly industrial metals, in a negative way.
Today saw a pretty steep selloff in US treasuries perhaps triggered by lukewarm bond auction results, Bund held in better.
After a blistering start last week for risk assets this week has been decisively more quiet on slow flow of economic data.
U.S. trade gap narrows more than expected in July
• The U.S. trade deficit narrowed more than expected in July, as imports retreated and exports shot to their highest since August 2008
• Exports rose to 1.8 percent to $153.3 billion, led by strong overseas demand for U.S. civilian aircraft, machinery, computers and other capital goods.
• Imports fell 2.1 percent to $196.1 billion, after a 3percent rise in June that had caught many analysts by surprise and lowered estimates of second-quarter U.S. growth.
• This is probably good news for USD – but no big news for stocks, commodities and bonds. However, growth in export is likely to be a positive contributor for Q3 GDP which can be good for risk assets.
US initial jobless claims falls slightly
• Initial jobless claims dropped by 27,000 to 451,000 in the week ended Sept. 4, the lowest level in almost two months.
US petroleum inventory rises to the highest level since 1990
• Petroleum stockpiles, including oil and fuels, rose 196,000 barrels to 1.14 billion last week, according to the Energy Department.
Possible Chinese Commodity Trading probe affecting markets
• Base metals are slipping on talk of Chinese crackdown on illegal funds, led by liquidation in Shanghai zinc where open interest dropped by 50,000 lots or almost 10 percent, traders said.
• "Zinc open interest is down 50,000 lots. It looks like someone was dumping zinc, taking profits and met no buyers and it spread to the rest of the market," a trader in Shanghai said.
If anything the biggest news has been possible Chinese investigation into speculative trading in commodities. Spreading rumors and fears are affecting many commodities, particularly industrial metals, in a negative way.
Today saw a pretty steep selloff in US treasuries perhaps triggered by lukewarm bond auction results, Bund held in better.
After a blistering start last week for risk assets this week has been decisively more quiet on slow flow of economic data.
U.S. trade gap narrows more than expected in July
• The U.S. trade deficit narrowed more than expected in July, as imports retreated and exports shot to their highest since August 2008
• Exports rose to 1.8 percent to $153.3 billion, led by strong overseas demand for U.S. civilian aircraft, machinery, computers and other capital goods.
• Imports fell 2.1 percent to $196.1 billion, after a 3percent rise in June that had caught many analysts by surprise and lowered estimates of second-quarter U.S. growth.
• This is probably good news for USD – but no big news for stocks, commodities and bonds. However, growth in export is likely to be a positive contributor for Q3 GDP which can be good for risk assets.
US initial jobless claims falls slightly
• Initial jobless claims dropped by 27,000 to 451,000 in the week ended Sept. 4, the lowest level in almost two months.
US petroleum inventory rises to the highest level since 1990
• Petroleum stockpiles, including oil and fuels, rose 196,000 barrels to 1.14 billion last week, according to the Energy Department.
Possible Chinese Commodity Trading probe affecting markets
• Base metals are slipping on talk of Chinese crackdown on illegal funds, led by liquidation in Shanghai zinc where open interest dropped by 50,000 lots or almost 10 percent, traders said.
• "Zinc open interest is down 50,000 lots. It looks like someone was dumping zinc, taking profits and met no buyers and it spread to the rest of the market," a trader in Shanghai said.
Friday, September 3, 2010
2010 09 03
Eurozone services sector in a pretty decent shape
• Growth of business activity remained firmly driven by the big-two nations of France and Germany. Italy and Ireland also reported growth, whereas business activity fell slightly in Spain.
• Business confidence improved in Germany (highest since December 2003), Italy (three-month peak) and Ireland (highest since June), but eased in France (13-month low) and Spain.
UK showing signs of slowdown – first manufacturing PMI now services
• The services sector, a massive source of business in the United Kingdom seems to be slowing the pace of expansion as the Markit Economics Services PMI turns out worse than expected.
• The Services PMI indicator was released at 53.1 last month. Amidst expectations of a slight drop to 52.8, the indicator took a dive all the way down to 51.3.
European consumers refuse to open up their purses
• European Union retail trade barely increased in July, data released Friday showed, indicating that the region's recent upswing in growth is not being matched by a rise in consumer spending.
• In Germany - often criticized for holding down domestic consumption while concentrating on exports - retail sales fell by 0.3 per cent on a monthly basis.
• Over the same period, they were up by 2.2 per cent in France and by 1.1 per cent in Britain, while in crisis-hit Spain they were down by 3 per cent.
US employment says that economy is NOT collapsing
• August's payroll report is reassuring, suggesting that while economic growth may have slowed, it is not collapsing.
• One apparent piece of good news was the private sector's ability to create a better-than-expected 67,000 jobs in August.
• Unfortunately, the economy isn't growing fast enough to create the number of extra jobs required to bring the unemployment rate down.
US services sector keeps falling – no bounce back like manufacturing here
• Growth of the key US services sector fell to its lowest level in seven months in August amid a weakening economic recovery, a survey report said Friday.
• The drop in the new orders index to an 8-month low of 52.4, from 56.7, is probably the biggest concern.
Argentine wheat mixed due to patchy rains-exchange
• Dry weather is affecting more than a third of Argentine wheat, but rains have improved the condition of crops in the most-important growing areas, Buenos Aires Grains Exchange said on Thursday.
• Argentina is one of the world's leading wheat suppliers and attention has shifted to dry conditions affecting 2010/11 crops in recent days, especially as the country is seen as helping plug the supply gap left by drought-hit Russia.
Putin says no grain exports before 2011 harvest
• Russia abruptly signaled on Thursday it would extend a grain export ban until late 2011 and ordered authorities to prevent speculators driving up food prices after the worst harvest in years.
• Prime Minister Vladimir Putin's surprise statement on the export ban -- which had been due for review after Dec. 31 -- puzzled analysts and helped send benchmark Chicago wheat prices higher.
• Growth of business activity remained firmly driven by the big-two nations of France and Germany. Italy and Ireland also reported growth, whereas business activity fell slightly in Spain.
• Business confidence improved in Germany (highest since December 2003), Italy (three-month peak) and Ireland (highest since June), but eased in France (13-month low) and Spain.
UK showing signs of slowdown – first manufacturing PMI now services
• The services sector, a massive source of business in the United Kingdom seems to be slowing the pace of expansion as the Markit Economics Services PMI turns out worse than expected.
• The Services PMI indicator was released at 53.1 last month. Amidst expectations of a slight drop to 52.8, the indicator took a dive all the way down to 51.3.
European consumers refuse to open up their purses
• European Union retail trade barely increased in July, data released Friday showed, indicating that the region's recent upswing in growth is not being matched by a rise in consumer spending.
• In Germany - often criticized for holding down domestic consumption while concentrating on exports - retail sales fell by 0.3 per cent on a monthly basis.
• Over the same period, they were up by 2.2 per cent in France and by 1.1 per cent in Britain, while in crisis-hit Spain they were down by 3 per cent.
US employment says that economy is NOT collapsing
• August's payroll report is reassuring, suggesting that while economic growth may have slowed, it is not collapsing.
• One apparent piece of good news was the private sector's ability to create a better-than-expected 67,000 jobs in August.
• Unfortunately, the economy isn't growing fast enough to create the number of extra jobs required to bring the unemployment rate down.
US services sector keeps falling – no bounce back like manufacturing here
• Growth of the key US services sector fell to its lowest level in seven months in August amid a weakening economic recovery, a survey report said Friday.
• The drop in the new orders index to an 8-month low of 52.4, from 56.7, is probably the biggest concern.
Argentine wheat mixed due to patchy rains-exchange
• Dry weather is affecting more than a third of Argentine wheat, but rains have improved the condition of crops in the most-important growing areas, Buenos Aires Grains Exchange said on Thursday.
• Argentina is one of the world's leading wheat suppliers and attention has shifted to dry conditions affecting 2010/11 crops in recent days, especially as the country is seen as helping plug the supply gap left by drought-hit Russia.
Putin says no grain exports before 2011 harvest
• Russia abruptly signaled on Thursday it would extend a grain export ban until late 2011 and ordered authorities to prevent speculators driving up food prices after the worst harvest in years.
• Prime Minister Vladimir Putin's surprise statement on the export ban -- which had been due for review after Dec. 31 -- puzzled analysts and helped send benchmark Chicago wheat prices higher.
Thursday, September 2, 2010
2010 09 02
Market broadly pushes higher on a day with no real good news. I think the ISM number yesterday took a lot of bears by surprise and they’re now retreated licking their wounds. But I believe the sharp push up in last 2 days set up for a particularly vulnerable Friday when the payroll number comes out.
Swiss Q2 GDP strong but shows slowdown
• Q2 Gross domestic product rose 0.9 percent from the first quarter, when it increased 1 percent
• Gross fixed capital spending jumped 2.1 percent from the first quarter, when it dropped 2.2 percent. Exports growth slowed to 1.7 percent from 3.7 percent.
• Switzerland’s recovery may lose some momentum as a global slowdown threatens to hurt exports just as a stronger franc makes goods less competitive abroad. Leading economic indicators fell for a second month in August and central bank President Philipp Hildebrand said on Aug. 21 he expects a “weaker” economic momentum in the second half of 2010.
• With exports accounting for more than half of Swiss GDP, the Swiss National Bank was forced to add billions of euros to its balance sheet in the 15 months through June to weaken the franc. Obviously this has done nothing to weaken the CHF and that is why every speculator is buying Yen. When central banks try to intervene there is blood in the water.
US jobless claims still way too high
• Initial jobless claims fell by 6,000 to 472,000 in the week ended Aug. 28, in line with the median forecast of economists
US july factory orders disappoint
• Orders placed with U.S. factories rose less than forecast in July, restrained by a slump in demand for capital equipment that points to slower business investment in coming months.
• A report yesterday showing manufacturing picked up in August signaled any factory slowdown will not be broad-based as companies like Caterpillar Inc. report increasing demand from overseas while Cisco Systems Inc. and Intel Corp. are among those lowering forecasts.
OPEC oil output falls to lowest since Nov 2009
• OPEC crude oil supply fell in August to the lowest since November 2009 as reduced supplies from Nigeria, the United Arab Emirates and Iraq offset increased output in Angola, a Reuters survey showed on Wednesday.
• Supply from the 11 members of the Organization of the Petroleum Exporting Countries with output targets, all except Iraq, averaged 26.83 million barrels per day (bpd) last month, down from 26.95 million bpd in July, according to the survey of oil companies, OPEC officials and analysts.
Mexico 2010/11 sugar output may break record -gov't
• Mexico's 2010/11 sugar production could exceed the record 5.4 million tonnes harvested in the 2007/08 season, Agriculture Secretary Francisco Mayorga said on Wednesday.
• Mexico has suffered two successive disappointing harvests that forced the government to open up import quotas for sugar.
Petroleum inventory gets even higher
• The Department of Energy reported that in the week ending August 27th, 2010, U.S. crude oil increased by 3.4 million barrels, gasoline inventories decreased by 0.2 million barrels, distillate inventories decreased by 0.7 million barrels, and total petroleum inventories increased by 4.0 million barrels.
• Total petroleum inventories moved further into multi-decade high territory. The surplus now stands at 105.395 million, or 10.2% above the 5-year average, up from 9.2% in the prior week.
Swiss Q2 GDP strong but shows slowdown
• Q2 Gross domestic product rose 0.9 percent from the first quarter, when it increased 1 percent
• Gross fixed capital spending jumped 2.1 percent from the first quarter, when it dropped 2.2 percent. Exports growth slowed to 1.7 percent from 3.7 percent.
• Switzerland’s recovery may lose some momentum as a global slowdown threatens to hurt exports just as a stronger franc makes goods less competitive abroad. Leading economic indicators fell for a second month in August and central bank President Philipp Hildebrand said on Aug. 21 he expects a “weaker” economic momentum in the second half of 2010.
• With exports accounting for more than half of Swiss GDP, the Swiss National Bank was forced to add billions of euros to its balance sheet in the 15 months through June to weaken the franc. Obviously this has done nothing to weaken the CHF and that is why every speculator is buying Yen. When central banks try to intervene there is blood in the water.
US jobless claims still way too high
• Initial jobless claims fell by 6,000 to 472,000 in the week ended Aug. 28, in line with the median forecast of economists
US july factory orders disappoint
• Orders placed with U.S. factories rose less than forecast in July, restrained by a slump in demand for capital equipment that points to slower business investment in coming months.
• A report yesterday showing manufacturing picked up in August signaled any factory slowdown will not be broad-based as companies like Caterpillar Inc. report increasing demand from overseas while Cisco Systems Inc. and Intel Corp. are among those lowering forecasts.
OPEC oil output falls to lowest since Nov 2009
• OPEC crude oil supply fell in August to the lowest since November 2009 as reduced supplies from Nigeria, the United Arab Emirates and Iraq offset increased output in Angola, a Reuters survey showed on Wednesday.
• Supply from the 11 members of the Organization of the Petroleum Exporting Countries with output targets, all except Iraq, averaged 26.83 million barrels per day (bpd) last month, down from 26.95 million bpd in July, according to the survey of oil companies, OPEC officials and analysts.
Mexico 2010/11 sugar output may break record -gov't
• Mexico's 2010/11 sugar production could exceed the record 5.4 million tonnes harvested in the 2007/08 season, Agriculture Secretary Francisco Mayorga said on Wednesday.
• Mexico has suffered two successive disappointing harvests that forced the government to open up import quotas for sugar.
Petroleum inventory gets even higher
• The Department of Energy reported that in the week ending August 27th, 2010, U.S. crude oil increased by 3.4 million barrels, gasoline inventories decreased by 0.2 million barrels, distillate inventories decreased by 0.7 million barrels, and total petroleum inventories increased by 4.0 million barrels.
• Total petroleum inventories moved further into multi-decade high territory. The surplus now stands at 105.395 million, or 10.2% above the 5-year average, up from 9.2% in the prior week.
Wednesday, September 1, 2010
2010 09 01
A rare positive economic data out of US is prompting a massive rally reversing last two weeks’ movements in stocks, commodities and bonds.
US manufacturing survey outcome indeed is a HUGE surprise given how poor all the regional Fed surveys have been. I am not sure if this would mark the beginning of upside surprises for US economic news – sentiment certainly seems like it has become extremely grim on US. I think it’s still too early for US rally compared to Europe at this point. Friday’s nonfarm payroll data is likely to be very poor.
We have seen a major rally like this before – so far this year there has been 5 days where SP500 rose more than 3%:
May 10, May 27, July 7, June 10 and today.
5/10/2010 1159.73 4.4%
5/27/2010 1103.06 3.3%
7/7/2010 1060.27 3.1%
6/10/2010 1086.84 3.0%
9/1/2010 1080.29 3.0%
SP500 was -8.2% in May and -5.4% in June. Only July was +7%. One day pop if anything foretells a poor overall month.
I still don’t see fundamental reason to re-embrace risk assets at this point.
Global manufacturing grows at a slower pace in August
• The Global Manufacturing PMI, compiled by JPMorgan with research and supply organisations, fell in August to 53.8 from 54.3 in June -- its lowest since November but marking its fifteenth month above the 50 mark that separates growth from contraction.
• The reason for slowing growth is declining new orders and waning boost from inventory restocking – both to be expected at this phase of economic recovery.
China PMI stabilizes in August
• China’a manufacturing gauge rose slightly in August ending 3 straight months of decline. Reading of 51.9 in Aug is better than the below 50 reading of July that shocked the world.
• Looking into detail, we see that domestic new orders are outpacing overseas orders perhaps signaling slowdown in global trade.
• It seems to me like China is managing to do a soft landing. Perhaps this signals the end of slipping economic data and perhaps additional government stimulus later this year. Not sure if that means I would necessarily be bullish A-shares but I think China is now likely to outperform rest of the year.
Eurozone manufacturing slowing but Germany and France still looking good while the others are in a bad shape
• The Markit Eurozone Manufacturing Purchasing Managers' Index for August dropped to 55.1 from 56.7 in July but was nudged up from an earlier flash estimate of 55.0 and marked its 11th month above the 50.0 mark that divides growth from contraction.
• Purchasing managers' surveys released earlier on Wednesday showed manufacturing growth in Germany, Europe's biggest economy, slowed in August whereas business in France accelerated. Italy and Spain saw their manufacturing indexes slip backwards, widening the gap among the euro zone's big four economies.
UK industrial recovery has now turned the corner for the worse.
• The drop in the composite PMI index from 56.9 to 54.3 is the third consecutive fall and leaves the index at its lowest level since November 2009. Most of the other main activity indices also softened, with new orders seeing a particularly sharp drop from 58.5 to 52.0, the lowest reading since June last year.
• Still far from a double dip territory but it’s looking like UK has also seen its economic peak in the past.
US manufacturing activity surprisingly good
• The Institute of Supply Management’s manufacturing figures showed an unexpected rise in US manufacturing activity in August.
• The index is a composite of surveys of more than 300 manufacturing firms on the direction of employment, production, new orders, supplier deliveries, and inventories, where readings above 50 suggest an expanding manufacturing sector, which in turn suggests economic growth.
• The headline numbers were mostly driven by gains in production and employment. The Production component increased from 57.0 in July to 59.9 in August. Employment jumped to 60.4 from 58.6 in the previous month. Despite these increases, the New Orders component, which is key to providing insight on sustainable economic growth since it is related to durables goods orders, fell by 0.4 to 53.1 in August.
US construction activities plummeting
• The U.S. Department of Commerce released a report that construction activity declined in July. Construction Spending fell by 1.0 percent in July after a revised prior period drop of 0.8 percent. The decline caught forecasters offguard as economists expected a decrease of just 0.5 percent. July’s print marks the third consecutive decline in construction spending after a peak of 2.3 percent in April 2010.
• This likely indicates further downward revision in GDP growth
ADP private payroll data in August is bad – but this indicator is notoriously volatile
• Automatic Data Processing revealed that the private sector cut 10,000 employees to payroll in August. The decrease follows the prior month reading which was revised downward by 5,000 to a final increase of 37,000 people. In addition, the August number surprised forecasts as economists were expecting an increase of only 15,000 people.
US manufacturing survey outcome indeed is a HUGE surprise given how poor all the regional Fed surveys have been. I am not sure if this would mark the beginning of upside surprises for US economic news – sentiment certainly seems like it has become extremely grim on US. I think it’s still too early for US rally compared to Europe at this point. Friday’s nonfarm payroll data is likely to be very poor.
We have seen a major rally like this before – so far this year there has been 5 days where SP500 rose more than 3%:
May 10, May 27, July 7, June 10 and today.
5/10/2010 1159.73 4.4%
5/27/2010 1103.06 3.3%
7/7/2010 1060.27 3.1%
6/10/2010 1086.84 3.0%
9/1/2010 1080.29 3.0%
SP500 was -8.2% in May and -5.4% in June. Only July was +7%. One day pop if anything foretells a poor overall month.
I still don’t see fundamental reason to re-embrace risk assets at this point.
Global manufacturing grows at a slower pace in August
• The Global Manufacturing PMI, compiled by JPMorgan with research and supply organisations, fell in August to 53.8 from 54.3 in June -- its lowest since November but marking its fifteenth month above the 50 mark that separates growth from contraction.
• The reason for slowing growth is declining new orders and waning boost from inventory restocking – both to be expected at this phase of economic recovery.
China PMI stabilizes in August
• China’a manufacturing gauge rose slightly in August ending 3 straight months of decline. Reading of 51.9 in Aug is better than the below 50 reading of July that shocked the world.
• Looking into detail, we see that domestic new orders are outpacing overseas orders perhaps signaling slowdown in global trade.
• It seems to me like China is managing to do a soft landing. Perhaps this signals the end of slipping economic data and perhaps additional government stimulus later this year. Not sure if that means I would necessarily be bullish A-shares but I think China is now likely to outperform rest of the year.
Eurozone manufacturing slowing but Germany and France still looking good while the others are in a bad shape
• The Markit Eurozone Manufacturing Purchasing Managers' Index for August dropped to 55.1 from 56.7 in July but was nudged up from an earlier flash estimate of 55.0 and marked its 11th month above the 50.0 mark that divides growth from contraction.
• Purchasing managers' surveys released earlier on Wednesday showed manufacturing growth in Germany, Europe's biggest economy, slowed in August whereas business in France accelerated. Italy and Spain saw their manufacturing indexes slip backwards, widening the gap among the euro zone's big four economies.
UK industrial recovery has now turned the corner for the worse.
• The drop in the composite PMI index from 56.9 to 54.3 is the third consecutive fall and leaves the index at its lowest level since November 2009. Most of the other main activity indices also softened, with new orders seeing a particularly sharp drop from 58.5 to 52.0, the lowest reading since June last year.
• Still far from a double dip territory but it’s looking like UK has also seen its economic peak in the past.
US manufacturing activity surprisingly good
• The Institute of Supply Management’s manufacturing figures showed an unexpected rise in US manufacturing activity in August.
• The index is a composite of surveys of more than 300 manufacturing firms on the direction of employment, production, new orders, supplier deliveries, and inventories, where readings above 50 suggest an expanding manufacturing sector, which in turn suggests economic growth.
• The headline numbers were mostly driven by gains in production and employment. The Production component increased from 57.0 in July to 59.9 in August. Employment jumped to 60.4 from 58.6 in the previous month. Despite these increases, the New Orders component, which is key to providing insight on sustainable economic growth since it is related to durables goods orders, fell by 0.4 to 53.1 in August.
US construction activities plummeting
• The U.S. Department of Commerce released a report that construction activity declined in July. Construction Spending fell by 1.0 percent in July after a revised prior period drop of 0.8 percent. The decline caught forecasters offguard as economists expected a decrease of just 0.5 percent. July’s print marks the third consecutive decline in construction spending after a peak of 2.3 percent in April 2010.
• This likely indicates further downward revision in GDP growth
ADP private payroll data in August is bad – but this indicator is notoriously volatile
• Automatic Data Processing revealed that the private sector cut 10,000 employees to payroll in August. The decrease follows the prior month reading which was revised downward by 5,000 to a final increase of 37,000 people. In addition, the August number surprised forecasts as economists were expecting an increase of only 15,000 people.
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