Graph of asymmetry of inflation vs. deflation on growth.
* Second quarter GDP was revised higher in the second estimate, UP to 1.7% from 1.5%. The Briefing.com consensus expected GDP to show 1.6% growth.
* More importantly, real final sales -- which exclude inventories -- were revised up from a 1.2% gain to show 2.0% growth. That revision depicts a much healthier economy and is more in-line with trends going back to Q2 2011.
Trade deficit actually declined to $42.9 bln in June. That move resulted in net exports contributing 0.3 percentage points to second quarter GDP as opposed to subtracting 0.3 percentage points in the preliminary release.
* Personal consumption (1.7% vs. 1.5%),
* Inventory changes were revised down from $66.3 bln in the preliminary estimate to $49.9 bln in the second estimate. That revision subtracted 0.2 percentage points from second quarter GDP growth. Inventories had added 0.3 percentage points to growth in the preliminary estimate.
* Economic growth slowed in every sector except for exports and government spending.
* Income rose 0.3% in July, the same rate as June and matched the Briefing.com consensus estimate.
* Personal spending increased 0.4%, up from no growth in June but slightly lower than the 0.5% gain expected by the consensus.
* As expected, the personal savings rate ticked down in July as spending growth exceeded income gains for the first time since April.
* Income growth was slightly stronger than the 0.1% gain in aggregate wages foreshadowed in the July employment report.
* Sales of goods rose 0.7% in July after declining 0.3% in June. The pickup was in-line with the retail sales data. Services spending increased 0.3%.
* Both headline and core inflation growth were flat in July.
* With the employment sector scuffling and uncertainty becoming more prevalent, consumption growth will remain weak.
Beige Book has been summarized as "modest improvements in the economy"
ES hourly chart , 1395 level is pre- FOMC minutes and market bounced off this at noon. We have put in 2 or 3 LH's and a
break of 1395 puts in a 3rd LL and takes out a little support a couple weeks ago.
From Zerohedge: on Germany's cheif central banker Weidmann.
Perhaps the most notable part of the interview is Weidmann's comparison between the ECB and the Fed, and why one is allowed to monetize bonds, while the other shouldn't be: "The Fed is not bailing out a cash-strapped country. It's also not distributing risks among the taxpayers of individual countries. It's purchasing bonds issued by a central government with an excellent credit rating. It doesn't touch Californian bonds or bonds from other US states. That's completely different from what we have in Europe....When the central banks of the euro zone purchase the sovereign bonds of individual countries, these bonds end up on the Eurosystem's balance sheet. Ultimately the taxpayers of all other countries have to take responsibility for this. In democracies, it's the parliaments that should decide on such a far-reaching collectivization of risks, and not the central banks." Of course, when the wealth of the status quo is at risk, such trivialities as democracies are promptly brushed by the sideline...
Don't underestimate how close the Court verdict is" is the warning that Morgan Stanley's European Research group sends out in a note today. In their view, there is a non-negligible risk that the German Constitutional Court will voice concerns about the ESM and, potentially, also the fiscal compact on September 12. Given that the EFSF is still in operation, given that the Court views the scope of the German constitution as being exploited already, and given its record of voicing concerns about European integration, MS sees a 40% chance that the Court bans Germany from ratifying the ESM treaty (with major repercussions for financial markets), at least for now, and while their base case is for ratification of both treaties, they believe the market is not priced appropriately for the downside tail-risk of a possible 'no' verdict (and the asymmetric scenarios below).
Europe continues to spew weaker data and this morning was no exception. Confidence amongst the eurozone consumers (-24.6 vs. -21.5) and businesses (86.1 vs. 87.9) fell to its lowest in almost three years last month, well below the Street's expectations and suggests that the economy has further to fall. The euro fiscal crisis continues to shatter periphery confidence where individuals and businesses are mostly affected by high unemployment and tough austerity measures.
Adding to the downbeat mood was data that showed the number of German unemployment claims rose for a fifth consecutive month in August. The number of claims rose by +9k, mostly as a result of the economic slowdown of Europe’s official “crutch.” The total number of unemployed rose to +2.905m from an unrevised +2.876m print in July.
10Y Spanish government bond spreads jumped 19bps today, the largest gain in almost a month, and are trading back above 525bps over Bunds (the worst in over three weeks). Even the front-end of the Spanish and Italian bond curves lost ground today - as the game of chicken between Rajoy and Draghi continues - with the ridiculous brinksmanship highlighting the entirely dysfunctional dis-union that really exists behind the scenes. European equity markets drifted lower all day, slammed lower after the US opened (with Germany's DAX underperforming - thanks to weak Autos - no surprise there for us), but bounced a little into the European close. EURUSD slumped 70 pips from its post-US-open intraday highs today - ending at 1.2500. Europe's VIX jumped back above 28% (from 21% just 10 days ago) - its highest in a month. Credit widened on the day, financials underperformed, and notably credit did not jump into the close like stocks did.
CitiFX is out with a note today that extends our concern as their proprietary CitiFX Positioning Indicator shows a rise from a record short in EUR in mid-July to a record long by last week. The EUR buying has been broad based and not just concentrated against the USD, with investors covering short exposure on pairs such as EURAUD and EURCAD. The shift in positioning came as peripheral spreads tightened and US yields fell, implying that it was kick-started by the surge in expectations for Fed and ECB easing. With equity markets roughly steady in recent days and data flow still relatively weak, this leaves the impression that the continued shift in FX positioning has been more about momentum than improvement in sentiment. This suggests that FX markets may be pricing in a higher degree of confidence on easing (or signs thereof) at the Jackson Hole conference and later ECB meeting. Given that absolute positioning for EUR is now long, this sets a high bar for policymakers to exceed and suggests risks are skewed in favor of a reversal on disappointment with Chairman Bernanke and President Draghi.
new and important bullish indicator for the gold market is that gold calls are at highs not seen since the October 2008 low as option traders go long gold in the belief that it will go higher. It suggests that option traders believe that U.S. Federal Reserve Chairman Ben Bernanke will hint at or announce additional money printing and monetary easing at the Jackson Hole, Wyoming, symposium. Alternatively, it suggests that they are bullish on gold due to the risks posed to the dollar and the risk of inflation taking off. The ratio of outstanding calls to buy the SPDR Gold Trust versus puts to sell jumped to 2.69 to 1 on August 24th and reached 2.76 earlier this month, the highest level since October 2008, according to data compiled by Bloomberg. Ownership of calls is up 26% since the July 20th options expiry. Ten of the most owned actively owned ETF option contracts are bullish. Option traders are regarded as savvier and tend to be more sophisticated then the more speculative futures traders.
UUP in a 5 week swing down consolidating last 4 days. Setup for bounce on no QE and any positive fed words. Hit hard on dovish FOMC minutes that Wednesday. Well below ma20 but xover on ma5
SPY is pulling back, 8 trading days from last HH.
GLD and EURO bull flags.
TLT treasuries seem to be trading with low inflation expectations ( matching JUL 0.0% CPI), low rates forever pledge, some fear of risk in Europe, and no US QE.
Today, I dont think QE happens tommorrow. Data on economy nfp/gdp/spending/income/retail sales/inflation/housing are recently not signalling recession/deflation.
FED minutes seemed gloomy to me as unemployment and lack of fiscal solutions/risks here and in Europe have members worried.
Wait and see what happens tommorrow. I am still bullish. Where/when is the frying pan in the face? Probably not tommorrow.
Expect GLD and VXX to sell off most with no QE. Treasuries and dollar to benefit. Euro main driver seems Europe. SPY to pullback till more fed talk and ADP/NFP next week.