Thursday, August 23, 2012

Not Very Encouraging Economic News ...

Initial jobless claims for last week came in higher than economists expected.  The Eurozone (EZ) PMI for August showed contraction yet again, but was up slightly from July.  The HSBC PMI for China was down from the prior month, yet again.  We believe given that the EZ PMI was better than the prior month, and even with such disappointing jobless claims, chances of a QE3 by the Fed have not increased.
Initial Jobless Claims
  • Seasonally adjusted initial claims print was 372K versus a 365K consensus, and up 4K from the prior week which was upwardly revised by 2K.
  • Seasonally adjusted 4-week moving average increased to 368K, up 3,750 from the prior week. 
Flash EZ PMI (August)
Overall output index (includes manufacturing and services) increased slightly to 46.6 from 46.5 in July.  This was driven mainly by an increase seen in France, while output PMI in Germany came in lower than the prior month.  Similar to the US ISM index, anything below 50.0 shows contraction.  Within EZ, PMI has contracted for seven consecutive months. 
The services index dipped to 47.5 from 47.9, while manufacturing increased to 45.3 from 44.0.
  • New orders sub-index inched up a bit, but remained below 50.0 for the 13th consecutive. 
  • Order backlog sub-index was also below 50.0, but came in slightly better than the July figure.
  • The employment sub-index continued to paint a grim picture as it remained well below 50.0. 
  • However, again, it was slightly better than the prior month, driven mainly by increase in manufacturing employment.
  • Unfortunately, output prices index remained above 50.0.  We believe continuing increase in output costs will show up in output prices (which also increased but remained below 50.0, showing lack of demand) sooner or later, possibly resulting in stagflation.
S&P 500 futures is down 3.75 points as it appears the market will open in red.  Of course, this figure could be much worse given such bad economic news, but as usual, the market has faith in that Fed 'insurance'.  Many believe additional color regarding a QE, or as we term it, a psychological QE, could be provided at the Fed conference in Jackson Hole, WY next week.  The next so-called catalyst that may delay or limit a decline in the market is the next FOMC meeting scheduled for Sept. 12 - 13.  Some are also hoping for a better than expected new home sales number, which will be released in approx. 30 minutes. 

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