Succinct Summation of Week’s Events:
1) Putin to the rescue!? Mr. Peacekeeper? Won’t Syrian civil war continue after any chemical weapons deal (assuming legit)? Whatever the outcome, brent crude eases off by about $4 and WTI by $2.5 and global markets breathe temporary sigh of relief on no imminent missile attack.
2) Good 10 yr and 30 yr treasury auctions reflect a market that more likely than not has priced in the current belief of a $10-$15b reduction in Fed asset buying next week. Most overseas sovereign bond markets also rally. Italy though trades soft on Berlusconi uncertainty.
3) Indonesia does its best to stabilize its currency and counter inflation with an unexpected 25 bps rate hike which followed a 50 bps hike on August 29th but to risk to its economy.
4) Emerging markets do bounce back with US bond market calm and coincident rally in the Asian FX index to a 4 week high. Sensex index rallies 2.4% on the week, Jakarta up by 7.4%, Thailand higher by 4.9% and Turkey jumps 6.5%. The temporary calm with Syria leads to a 4.4% rally in Jordan, 8.6% in Dubai, 3.4% in Saudi Arabia and 2% in Israel.
5) Japan awarded the 2020 Olympics, a nice boost to confidence for the Abe Part II regime.
6) Industrial production, retail sales, fixed asset investment and exports all gain more than expected in August for China but they also saw a spike in loan growth. Total social financing jumps to 1.57T yuan vs the estimate of 950b and almost double the level seen in July.
7) The business friendly Tony Abbott becomes PM in Australia but was widely expected.
8) US business inventories in July rise .4% m/o/m, twice expectations while sales gain .6%. All else equal, it could lift Q3 GDP estimates by .1-.2 of a % from the consensus of 2%. We still think 1.5-2%.
1) What to make of US foreign policy in the Middle East and will it lead to a higher for longer geopolitical premium in crude oil?
2) UoM consumer confidence in September falls to 76.8 from 82.1, below the estimate of 82 and the lowest since April. Both Current Conditions and the Economic Outlook fall and one yr inflation expectations rise to 3.2% from 3.0%, the highest since March even though gasoline prices have not followed crude higher.
3) Retail sales in August are soft but July revised higher so taken together only a bit below forecasts. Sales for auto’s, furniture, online retailing and department stores higher but lower for clothing and building materials in particular.
4) Higher energy and food prices lead to .3% gain in headline PPI but core rate just flat as car/truck prices fall.
5) MBA said refi applications plunge by 20.2% w/o/w to lowest since June ’09 and is now down by 70% since May when initial taper talk from Bernanke began. Purchase apps fall 2.7% to 4 week low.
6) NFIB small business optimism index falls a touch to 94 from 94.1 and vs the consensus of 95. Components very mixed as Plans to Hire up to 16% from 9%, the best since January ’07 but those that Expect a Better Economy fell to -10% from -6%, a 4 month low. Those that Expect Higher Sales rose to 15% from 7% but those that said it’s a Good Time To Expand fell 2 pts.
7) July industrial production in the EU weak, falling 1.5% m/o/m and 2.1% y/o/y vs the estimates of down .3% and .2% respectively. The long and winding road ahead for the European economy.
8) Japan July machinery orders unchanged m/o/m vs the estimate of up 2.4%. Consumer confidence falls to 43 from 43.6, the weakest of the year due to a drop in Income Growth component. With inflation rising, those wage gains can’t come soon enough.
9) Australia unexpectedly loses a net 10.8k jobs in August vs the expected gain of 10k.
Chief Market Analyst
The Lindsey Group LLC
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Fairfax, VA 22030
peter -at- thelindseygroup -dot- com