David A. RosenbergAugust 18, 2009
Chief Economist & Strategist Economic Commentarydrosenberg@gluskinsheff.com+ 1 416 681 8919
MARKET MUSINGS & DATA DECIPHERING
Breakfast with Dave
WHILE YOU WERE SLEEPINGIN THIS ISSUE
• While you were sleeping — tepid recovery in the Asianmarkets today; bonds are trading on the defensiveside• Are the markets at a turning point?• What does an “L-shaped”recovery look like? Theeconomy not juststagnates but growth rateis choppy, sloppy and toppy• NY Empire StateManufacturing index — agood data point for tech• U.S. bank lending guidelines — still tight butless so• Housing index edges up• Foreign investors load upon U.S. treasuries• Time for a new60%/30%/10%benchmarkVery tepid recovery in the equity market with the likes of Japan (+0.2% or 16points, to 10,284), Hong Kong (+0.8% or +168 points, to 20.306) and China(+1.4%) recouping but a fraction of yesterday’s steep losses. China hassuccumbed to signs of credit tightening after the lending boom of the lastseveral months — page 19 of the Financial Times reports that bank lending inJuly collapsed 77% MoM as stricter regulations were unveiled —the lowest sincelast October when the stock market was still searching for a bottom. Europeanbourses are bid on the back of a solid ZEW sentiment figure in Germany (it hit a three-year high in August). But this is a clear case of double-counting since theZEW is an investor confidence index and as such is a reflection of the equitymarket; so when it comes in higher it helps drive the equity market higher. Talkabout a self-perpetuating game. Sterling got a lift and U.K. gilts retreated onhigher-than-expected U.K. consumer price data (these days a “strong” CPInumber is one that merely doesn’t deflate — as was the case today).Commodities are trading more firmly than they were this time yesterday whilebonds are trading on the defensive side — but this is likely little more than profit- taking after yesterday’s monster rally in the U.S. Treasury market. With inflationrunning at -2.0% and deflating wages and rents likely to ensure that we see littledeviation from that trend with all deference to the oil price, we have a situationwhere the “real” yield on the U.S. 10-year T-note is a hefty 5.5%. That is, in aword, juicy and a nice compensation for a muddled fiscal outlook.In the meantime, all we see is more evidence of a revenue-less recovery. HomeDepot beat estimates but still posting a deflationary 9.1% sales plunge afterLowe’s announced a 9.5% slide in same-store receipts. And, don’t look now, but three-month dollar Libor rates are back on the rise in the aftermath of the seizureof Colonial BancGroup (bringing the number of failed banks this year to 77 ... hello, the credit crisis is not over just because the government bailed out the big boys).
ARE MARKETS AT A TURNING POINT?
Gold testing its 100-day moving average to the downside
Canadian dollar and the TSX are both seemingly on their way to test their 50-day moving average
The CRB index and the oil price broke below its 50-day m.a. yesterday
Another 35 points, or 3.5%, for the S&P 500 to do likewise
The 10-year Treasury note yield just smashed through its 50-day m.a. and has20bps to the downside left to test the 100 day m.a.
The VIX index jumped 15% to 27.89 — last time it was here (July 10), the S&P500 was sitting at 879 (100 points south of where it closed yesterday)
Please see important disclosures at the end of this document.
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