Week End Blog – Limit Downs, PMIs and Fed Anxiety

· by · in FINANCIAL MARKETS, MACRO. ·

After a couple of weeks of ‘Greece skipping’, I’m allowing the country back into the Week End Blog. Politicians have taken a more constructive stance, although it remains quite uncertain what the Greek bailout program will look like, if there’s going to be a program at all. Meanwhile, Greece’s economy is collapsing, again. The Greek Manufacturing PMI fell from 46.9 in June to 30.2 in July. Surely, this is one of the graphs of the year.

Greece dared to reopen its stock market this week. Right from the start, things got pretty messy. In the first two days, most stocks hit their limit down as the Athens Stock Exchange General Index (ASE) crashed 17%. Especially banks were hit hard. But, as the week progressed things got a bit better. Even banks managed to regain some of the lost ground.

From a longer-term perspective, though, things look pretty horrific. The market cap of most Greek banks has been completely wiped out. I get the ‘invest in Greece because valuation is attractive’ routine, but there’s also something about falling knives…

Over to another emerging country (‘yes’, Greece is emerging once more), Brazil! It’s not that different from Greece, when it comes to PMI data. But, instead of collapsing, like Greece does, Brazil is experiencing an agonizingly slow recession that keeps getting worse.

As mentioned in previous Week End Blogs, other emerging markets are having a hard time as well. This week we saw consumer confidence in Thailand falling a seventh consecutive month. And this is just one example of the bad state many emerging countries are in. It will take a while before the emerging world gets its groove back.

Let’s move over to the US. After a somewhat disappointing ISM Manufacturing index last week, this week’s ISM data were very upbeat. First, the ISM New York spiked to 68.8, comfortably the highest level of this year.

New York is a bit on an outlier, of course, but the ISM Non- Manufacturing index demonstrated that it’s far too early to write off the US economy. For the first time in 10 years the ISM Non-Manufacturing came in at above 60. Debate the relevance of the Non-Manufacturing index all you want, this number is massive in any case.

The nonfarm payrolls for July were a bit less exuberant at 215K, slightly below expectations, but the overall trend looks healthy. In previous cycles the current level of job creation was no obstacle for the Fed to start raising rates.

Hence, the discussion on the timing of the first Fed rate hike continues. RBS Economics ‘tweeted’ an insightful table this week showing that all 15 OECD countries that raised rates since the outbreak of the financial crisis were forced to reverse at some point. Will Yellen have a good look at this table? Or at these five graphs I blogged earlier?

PMI indices hitting highs and lows, oil couldn’t care less. The trend is down and this week was no exception. Crude oil hit a low of USD 44.20 on Thursday, causing the number of ‘losers of lower oil prices’ to increase. Interestingly, Russian stock prices have performed reasonably well during the second down-leg in oil and did not make the graph below.

Stocks in general seem to be running out of steam. Since the start of August, the S&P 500 index is down 1%, and if history is any guidance this could get worse. On average stocks underperform bonds by 2% in August.

Two to go! First, a very interesting graph showing just how big US companies are in terms of market cap. Companies like Chevron, General Electric and Intel are comparable to the combined market cap of Mexico, Russia and Brazil, respectively.

Second, something to look at during the weekend. Below is the winning photograph of the National Geographic Traveler Photo Contest 2015. It’s just amazing, isn’t it? If you want to see the runner ups as well, click here.

Thank you for reading the Week End Blog. Enjoy your Weekend and/or holiday!

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