Anthony Peters
SwissInvest strategist
From time to time one runs into something of an “Oops, that wasn’t supposed to happen…” situation and this week-end was a classic one of those. US store sales over the Thanksgiving weekend – which includes that rather nonsensically but still catchingly named Black Friday – would appear to have been disappointingly soft and in effect down on last year too.
Initial reports would lead us to believe that foot-fall was higher but that, nevertheless, average spend was lower by around 5%. Consumer confidence figures really haven’t been all that compelling but most of this had until recently been blamed on the fiscal-cliff-cum-debt-ceiling shenanigans on Capitol Hill. There is, however, a small number of both economists and strategists around which is looking out for traditional late-cycle indicators which could signal a possible flattening, if not reversal, in the recovery trajectory.
There is a long tradition in our business to focus on the economic indicators which confirm the direction in which the market is going and not the other way around and this could find a classic expression in today’s release of the November Manufacturing PMI. The forecast is for a strong reading of 55.1. If the prediction is accurate, the glass-half-full brigade will point to the strength of the number – anything north of 50 indicates expansion – but the glass-half empty bunch will focus in the softening versus the even stronger reading in October of 56.4.
We have just experienced a similar event in India where Friday saw Q3 GDP reported at a stronger than forecast +4.8% (vs 4.6%), up from +4.4% in Q2. Fine and dandy? Not really, for India is fighting with a growth rate which is significantly too small relative to what it should be and to one which would meaningfully impact on its overall position. Anything less that 8% is really not particularly helpful, given its aspirations and its demographics.
Since GDP growth dropped below that magical 8% figure in early 2011, the rupee has fallen from 45/US$ to its current level of 62/US$ while having spiked to a low of close to 69/US$ as recently as August. On that basis, +4.8% is neither here nor there and no more exciting that would have been the 4.6% on the downside or, most equally likely, 5.0% on the upside.
Down on main street
Back in Washington, the sequester-related cuts to federal government spending are still in the process of being implemented and their full impact on overall economic performance remain uncertain. It would appear the Joe Six-Pack remains sceptical and although equity markets are behaving as though the sky’s the limit, down on Main Street matters don’t appear to be quite as clear cut as they do on Wall Street.
The FOMC might not be meeting until December 17th/18th but the markets are already positioning themselves and by my reading it is not for an early announcement of tapering.
Meanwhile, the pink’un carried an interesting piece this morning (a bad night’s sleep and iPad by the bedside do wonderful things to my reading) which looks at the speed of the UK recovery and how it is perceived across the world. I recall writing on my return from my sabbatical leave on September 2nd about the difficulty I was having in squaring the circle of rising consumption and either stagnant and falling real wages.
The FT article points to the envy which is evident in Spain and Italy for the revival in UK growth but the scepticism in the US and Germany and points to the concomitant FDI. The former primarily see consumption taking off, the latter are less impressed with growth which seems to be once again driven by rising residential real estate prices with what they believe to have strong bubble potential and which appear to be engineered by Westminster.
BofE Governor, Carney the Magician, has made his discomfort known but political priorities and a love for populist policies in Number 10 and, to a slightly lesser extent, in Number 11 are beginning to make a mockery of the Bank of England’s much vaunted independence. The Old Lady has now withdrawn Funding for Lending for residential real estate business in order to counteract the effect of mezzanine mortgage debt guarantee which the government is handing out willy-nilly and at the sole risk of the taxpayer.
In the FT article, the UK is lauded for the radical way it took on and began to clean up its troubled banks rather that following the “it’ll be alright on the night” approach of many of its European partners and thus sees a banking system which is both willing and able to lend back into the economy again. Sceptics – Germans in particular – can’t see how rising asset prices alone can drive growth. Over-indebted southern Europeans don’t seem to see the problem. Funny that, isn’t it?
Anyhow, worth a read if you have time between internet shopping on what has been dubbed “Cyber Monday”, apparently the biggest net shopping day of the year. Bend the plastic and shop, baby, shop!
