FMX | Connect – www.fmxconnect.com - (Reported 9/14/2010)
Breakfast with Dave: Surveys Say Hunker Down for a Slow Recovery
Excerpt from MARKET MUSINGS & DATA DECIPHERING
MARKET COMMENT
It’s a real commentary that the National Bureau of Economic Research (NBER) decision on the historical record mattered more than the actual economic data. The National Association of Home Builders’ (NAHB) housing market index is the latest data point in an array of September releases coming in below expected:
•Philly Fed index: actual -0.7 versus 0.5 expected
•Empire manufacturing index: actual 4.14 versus 8 expected
•NAHB: actual 13 versus 14 expected
•University of Michigan Consumer Sentiment: actual 66.6 versus 70 expected
It’s early days yet, and these are only surveys, but it would seem as though the economy remains very sluggish as we head towards the third-quarter finish line.
It is truly difficult to come up with an explanation for the breakout, which in turn makes it difficult to ascertain its veracity. If we are seeing a re-assessment or risk or a major asset allocation move, then why did Treasury yields rally 4bps (and led lower by the “real rate”, which is a bond market proxy for “real growth expectations”)?
If it was a pro-growth move, why did copper sell off and the CRB flatten? And where is the volume? Still lacking? So we have a breakout with little or no confirmation. All we can see is that many sentiment measures have swung violently to the upside in recent weeks and the VIX index is all the way back to 21x —- somewhat contrary negative signposts for the bulls.
But the price action is undeniable and the bulls are in fact winning the battle in September, a typically negative seasonal month, after a bloody August. The fact that bonds rallied yesterday is a tad bizarre and perhaps the explanation, if there is one, is that the equity market is enamoured with the cash leaving the corporate balance sheet in favour of dividend payouts and share buybacks and bonds love it that this money is not going into ramped-up capital spending plans. Call it deflationary growth or something like that (or maybe this is just grasping for straws).
THE RECESSION IS OVER! THE RECESSION IS OVER!
Well, the National Bureau of Economic Research (NBER) made it official yesterday, and told us what Statistics Canada apparently knew back in April — the recession ended in mid-2009. The equity market rejoiced, which itself is amusing since supposedly the stock market is a discounting mechanism, but it goes to show that old news sells well. At the same time, there goes our “single-scoop” theory and the same bulls that told us how all we would get was a soft landing heading into 2008 are telling the masses that double-dips never happen.
NO RECOVERY IN HOUSING
The National Association of Home Builders (NAHB) housing market index disappointed in September, coming in flat, at 13, instead of inching up a point to 14, as was widely expected. At 13, this is now well below the stimulus-led nearby high of 22 set in May. Disturbingly, the “prospective buyer traffic” subindex dipped a point to 9 — the lowest since March 2009 when the recession was at its worst point. How ironic then that it would be on this day that the NBER would announce that the recession ended last year.
The NBER obviously puts a lot of weight on GDP as opposed to how it got there or how sustainable the recovery is. Limp yes, but with a pulse. But consider for a moment that in a recession, the NAHB index averages 28.1, and in an expansion, it averages 54.2. So hopefully, that puts the 13 we saw in both August and September into some perspective. It certainly calls into question how this recovery will be sustained without a vibrant housing market.
THE BLOOM IS OFF THE (CANADIAN) ROSE
July did not seem to be a great month for the Canadian economy. The latest data released yesterday, wholesale sales, disappointed, falling 0.1% MoM in July (economists had expected a 0.3% increase). Once Statistics Canada adjusted for price effects, the result was worse – falling 0.3% MoM in real terms. Tumbling auto sales seemed to be the culprit, with sales in nominal terms down 3.2%.
For the real GDP bean count, this is not good news, especially after real manufacturing shipments fell 0.9% in July. We are still missing retail sales, but we do know that retail auto sales were up in July (only to fall in August). So, we have factored in a generous increase for July retail sales, which still leaves our tracking for July GDP at 0% — not good. This means that the third quarter is on track for a sub 2% QoQ annualized increase — almost half what the Bank of Canada has penciled in (2.8%).
Will two quarters of disappointing GDP figures get noticed by the Bank? We hope so and think a pause in the current rate-hiking cycle is warranted, given how quickly the Canadian economy is slowing.
David A. Rosenberg
Chief Economist & Strategist Economic Commentary
drosenberg@gluskinsheff.com
+ 1 416 681 8919
Source: Market Musings & Data Deciphering
http://www.fmxconnect.com/
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