Global Macro Perspectives
Looks like market optimism is not jet ready to vane. On the back of falling dollar the gold reached new highs, and equity followed. It looks that the speculation on extension of some stimulus measures played most important part in this mini rally. Looks like dollar, gold, crude oil and equity correlation have become a part of computer algorithms and almost perfect inverse relationship will continue. Not indefinitely, I’m sure. It looks artificial.
Despite some mayor bearishness coming through the media, blogosphere and market moving downwards, I see no strong enough catalyst to move markets significantly lower. As I’m writing this post European equities are trading flat after opening lower and US equity index futures marginally higher. Asia closed mostly negative. Looks like no action day today.
Returning to my screens after few days of vacation and couple of days of useless erins. Let me recap economic announcements in the last few days. Housing starts at consensus of 598k, building permits at 579k versus consensus of 583k. We have a 20% rise from the lows a few months ago. House prices rose 0.3% vs. consensus of 0.5%. Important indicator to watch, as seasonal effects ad government stimulus could fade into the winter. Mortgage applications up 12.8%.
Optimism is a flavor of the day. Nice article by Bloomberg showing disparity between analysts and economists. Bloomberg link: Stocks Show Why Analysts Dismiss Economists on Growth. Not that I think that either of them will be right at the end of the day, but it’s interesting to look at the dilemmas the market is in. Its pretty obvious, given the run we had, no analyst wants to look like an idiot having bearish reports so they are chasing the market. On the other side you have economists who are analytical guys; who don’t want to believe that anything beside predicted by their models will happen and those prospects don’t look good. And we have also corporate insiders who are selling and companies that are issuing shares. Bloomberg link: Mobius Spurns Brazil Share Offers as Gol Seeks Sale. (disregard Mr. Mobius statements as he probably trades opposite his statements). Being skeptical and contrarian by nature the market looks overly optimistic to me, but given the sentiment it could go further higher.
Same as the day before, yesterday we saw mostly “better than expected” data from the US. Most notably new home sales were up 9.6% in July. Durable goods orders came 4.9% higher in July vs. 3% consensus and -2.5% the month before. Better than expected orders were mostly result of US government “cash for clunkers” program from which, by the way, mostly benefited Japanese auto makers. Durable goods ex transportation came at 0.8% vs. 0.9% consensus and 2.5% the month before.