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Backward days

08/02/2012

Today I had the privilege to spend some time with CNBC Senior Economist, and good friend, Steve Liesman. It’s always fun to catch up with Steve as I did this morning before appearing on Fast Money Halftime. Of course, our mutual adoration of the New York Yankees made the team’s recent struggles our conversational priority. We quickly assured each other that all will be okay in October.
 
More seriously, though, it is always advantageous to check in with Steve in particular ahead of a FOMC meeting, ECB meeting, and Friday’s job report. Steve astutely pointed out how backward this week’s calendar is in terms of economic priority. I wholeheartedly agree. Priority number one for our markets is U.S. jobs, priority number two is Europe, and priority number three is the FOMC. Steve’s observation prompted me to offer him my perspective that the August 31 Jackson Hole symposium becomes this month’s Super Bowl. Any missteps along the way in August can be addressed at month’s end with a fresh round of new Fed asset purchases, and, of course, Steve will be there to cover it, should it happen.
 
TODAY’S NON-U.S. MANUFACTURING DATA
 
Global PMIs for July:
 
•  China PMI (Figure 1.1) 50.1, below last month’s 50.2 and estimates for 50.5
•  South Korea 47.2, below last month’s 49.4
•  Ireland 53.9, up from last month’s 53.1
•  Sweden 50.6, above last month’s 48.4 and estimates for 47.7
•  Poland 49.7, above last month’s 48.0 and estimates for 47.2
•  Hungary 51.9, below last month’s 52.8
•  Italy 44.3, below last month’s 44.6
•  France 43.4, below last month’s 43.6
•  Germany 43.0, below last month’s 43.3
•  Greece 41.9, up from last month’s 40.1
•  United Kingdom 45.4, below last month’s 48.6 and estimates for 48.4
  
COMMENTARY
 
Except for Sweden, which recently reported a stronger than expected Q2 GDP of +1.4% (well above +0.2% consensus), the eurozone continues to report “recessionary” manufacturing figures. In the past week, ECB President Mario Draghi has suggested a very strong response to support the euro currency (Figure 1.2) as it continues to trade lower on the recessionary European environment.
 
Thursday ,August 2, before the U.S. market opens, the ECB will announce its August monetary policy stance. I do not expect any rate changes. However, the ECB may initiate outright purchase of private assets to lower private sector borrowing costs, possibly announce a third LTRO, and use the communique/press conference to assure markets that if a country requests EFSF support, the ECB will conduct aggressive purchases of sovereign bonds.
 
 
Figure 1.1 China PMI, August 2011 to August 2012

Source: Bloomberg
 
Figure 1.2 Euro Currency, August 2011 to August 2012

Source: Bloomberg

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