Economic Data and Central Bank Plans Occupy Most Attention

August 21, 2014

The Jackson Hole Symposium for central banking begins today.

  • July 30 FOMC minutes released yesterday expressed surprise over the speed of improvement in the U.S. labor market and noted that Fed exit strategy will be anchored around the fed funds target.  Chair Janet Yellen speaks Friday at the Symposium.
  • ECB President Draghi also addresses the conference.  Preliminary PMI survey results for August released today revealed euro area manufacturing to be lagging even more.  On speculation that the ECB will need to stimulate further, stocks in Europe have risen so far today by 1.6% in Italy, 1.0% in Spain, 0.8% in France, 0.6% in Germany but just 0.2% in Britain.

Geopolitical risk has been a lessening market factor.  The DJIA poked above 17,000 today for the first time in August.  European PMIs haven’t been hammered as badly as feared by the Russian-Ukraine border tensions. Gold is down 1.3% at $1,278.20 per ounce. Oil is unchanged and comfortably under the $100 per barrel threshold at $96.07.

The dollar is generally steady, showing no change versus the yen from Wednesday’s close, dips of 0.2% to the loonie and 0.1% against the euro and Swiss franc counterbalanced by upticks of 0.1% vis-a-vis sterling and the Australian dollar.  The latter was depressed to an 11-week low of $0.9237 by a 4-month low reported in China’s manufacturing purchasing managers index, which printed at just 50.3 after 51.7 in July, 51.0 in June, 50.8 in May, and 48.1 in April. 

The kiwi rose 0.2% in spite of the news that New Zealand consumer confidence slumped 5.4% to a 10-month low in August.

Asian stocks fell 1.4% in South Korea, 0.7% in Hong Kong, 0.5% in China, and 0.4% in Taiwan.

U.S. data released today were mostly encouraging.

  • Markit Economics reported a 2.2-point advance in its U.S. purchasing managers manufacturing index to 58.0, implying the strongest rate of expansion since April 2010.
  • Existing home sales rose to a 10-month high of 5.15 million in July instead of dipping as had been projected by analysts.
  • The Philly Fed manufacturing index posted a third straight increase, printing at 28.0 in August versus 23.9 in July, 17.8 in June, and 15.4 in May.
  • The Conference Board reported a 0.9% increase in the index of leading economic indicators in July, better than forecast and above the 0.6% June rise.
  • New jobless insurance claims last week edged back below 300K to 298K from 312K in the prior week.  The 4-week average was 300.75K.

Japan’s purchasing managers index in manufacturing, according to the preliminary report, improved more than assumed and to a 5-month high in August of 52.4 from 50.5 in July, 51.5 in June, 51.1 in May and 49.4 in April.

The euro area manufacturing purchasing managers index floundered at a 13-month low of 50.8 in August, a full point below July’s score.  The services PMI of 53.3 and composite PMI reading of 52.8 were at 2-month lows.  The data suggest GDP this quarter is growing at about a 0.35% rate rate, not annualized.

Germany’s composite, manufacturing, and service sector PMI indices –- respectively 54.9, 52.0 and 56.4 -– were at two month lows.

The French composite PMI edged up 0.6 points to 50.0 after three sub-50 readings in a row.  But like the euroland and German data, the French showed a widening divergence between a 15-month low in manufacturing and a 5-month high in the services component.

Consumer sentiment in the euro area worsened for a third straight time in August, dropping 1.6 points to negative 10.0.  Such was –7.1 in May.  This indicator shows uneasiness over geopolitical risk and stubbornly high unemployment. Belgian consumer confidence fell to a 12-month low of minus 11.  Dutch unemployment eased 0.2 percentage points to 8.2% in July.

British retail sales were disappointing relative to expectations, rising just 0.1% in July following a 0.2% uptick in June.  Public sector borrowing of 1.09 billion pounds in July was only about half as much as forecast.  As a percent of British GDP, debt in July stood at 76.5%.

Norwegian and Mexican GDP figures were released.  Mainland GDP in Norway went up 1.2% on quarter, over twice as much as forecast, and 0.9% excluding offshore energy.  Mexican GDP expanded 1.0% from 1Q and 1.6% from the second quarter of 2013.

Danish retail sales dipped 0.1% on month, and the 12-month rate of increase was halved to 0.4% in July.  Danish consumer confidence rose 0.8 to 11.4% this month, beating expectations.  Swedish unemployment eased back in to 7.1% in July from a 4-year peak in June of 9.2%.  The seasonally adjusted jobless rate was 7.9%, down from 8.0%.

Swiss M3 growth slowed to a 12-month increase of 3.5% in June from 4.1% in May, while the Swiss trade surplus jumped 2.8-fold to CHF 3.985 billion on an 8.3% increase in exports between June and July.

Australia’s index of leading economic indicators improved for a second straight month, rising 0.4% in June, while the index of coincident economic indicators went up by 0.2%.

Japanese stock and bond transactions last week generated a net 611 billion yen outflow, similar to the outflow of JPY 702 billion in the prior week.  Japanese supermarket sales were 2.1% lower than a year earlier in July after a 2.8% drop in June.

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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