Archive for month: October, 2013

Last Week

Although last week was dominated by the temporary resolution in Washington, there were two important takeaways from the domestic and global economic data that was released.

First, last week was important with regard to Chinese data and their economy, and largely the results met expectations (which is a positive).  Q3 GDP met expectations, rising 7.8%.

The Consumer Price Index was a touch higher, but mostly because of vegetable prices. Importantly, it’s not high enough to have the Chinese government start to remove economic stimulus.

Plus, industrial production and retail sales data for September met expectations. Finally, commodity imports were surprisingly strong, implying there is underlying strength in the Chinese economy.

From a market standpoint, this data was important because it further reassures the markets that the Chinese economy isn’t seeing a significant slowdown in the pace of growth. (Meaning ,there is little risk of a Chinese economic “hard landing.”) From an investment perspective, it implies the “global economic recovery” investment thesis remains valid, which is positive for cyclical stocks, multi-national industrials, global industrial miners and transportation stocks.

Second, here in the U.S., we got our first look at the state of the economy in October via the Empire State and Philly Fed reports. The takeaway is that the shenanigans in Washington did have a negative effect in the near term, but the manufacturers surveyed in the reports continued to see positive momentum building beyond the temporary government shutdown.  We know that because, while both headline indices declined from September levels, the new orders index (a leading indicator) rose for both reports—again implying that the government shutdown hasn’t significantly altered expectations of activity in the future.

So, to word it simply: For the next several weeks, the market will be wondering: “How Much Damage Did Washington Do?”

And, although it’s still early, both the Empire State and Philly Fes surveys gave us an answer of “some, but not a lot.”

If that answer proves valid, then that’s bullish for risk assets into year-end.

This Week

This week will be very important in providing more insight into the three key questions before the market:  1.  “How much damage did Washington do to the U.S. economy?”  2.  “Is the global economic recovery continuing or losing some steam?” and 3.  “Will the Fed taper in December?”

Right now the market “expects” the data to reflect these answers:  1.  “Some but not much.”  2.  “Yes it’s continuing but with a small loss of momentum” and 3.  “No, unless the economic data comes in much, much better than expected.”

First, the September jobs report will be released tomorrow morning at 8:30 a.m.  Right now the expectation is for around 180K jobs added, but make sure to watch the revisions.

The August number was very low (153K), almost borderline shockingly low, and there is some expectation that this number may be revised significantly higher.  So, point being, look at the revisions to the August data as much as you do the headline number for clues as to how the market will trade.

Second, global “flash” Purchasing Managers’ Indexes for October hit Wednesday night (China) and Thursday morning (Europe & U.S.).  Obviously this is the next key round of data for the “global economic recovery” thesis.

Additionally, the flash PMIs (which are collected by the private firm Markit and will reflect activity throughout the government shutdown) will give a lot more insight into the “how much damage has been done to the economy” question

Third, we get the latest look into the health of the housing market via Existing Home Sales (today) and New Home Sales (Thursday).  Obviously a recovering housing market remains a key driver for the growing economy. And, as has been the case, investors will be looking for clues about the effects of higher interest rates on home purchases.  Incidentally banks, in their earnings calls, have had generally “OK” commentary toward mortgages and housing, so most expect these numbers to reflect a bit more slowing, but with the recovery still intact.