NEW$ & VIEW$ (1 AUGUST 2013)

Jobless Claims in U.S. Fall to Lowest Level in Five Years

Applications for unemployment insurance payments declined by 19,000 to 326,000 in the week ended July 27, the fewest since January 2008, from a revised 345,000 the prior week, the Labor Department reported today in Washington. The median forecast of 50 economists surveyed by Bloomberg called for 345,000. A government analyst said no states were estimated, and the data were still being influenced by the auto plant shutdowns that play havoc with the figures at this time of year.

The less-volatile four-week moving average declined to 341,250 last week, a two-month low, from 345,750.

Tepid Growth Restrains Fed The U.S. economy is faring a little better than previously thought, but the overall picture is still one of lackluster growth.

The Commerce Department reported Wednesday that the economy grew at a 1.7% annual rate in the second quarter, enough to ease fears of a full-on summertime economic stall but still a sluggish pace by historic standards. (…)

Still, the April-June performance was only a small acceleration after the first quarter’s revised paltry 1.1% growth rate and represents little comeback from the end of last year, when the economy barely grew.

More than 24% of the quarter’s growth came from an increase in inventories—a buildup that is unlikely to be repeated and could even be erased in subsequent data revisions.

Consumer spending, which has been the backbone of the recovery recently, grew at a slower pace in the second quarter, with Americans cutting spending on hotels and restaurants—a possible indication families are pulling back on discretionary items.

The Commerce Department also significantly reduced its estimates for the prior four quarters and said the annual pace of growth since the recovery began in mid-2009 was only 2.2%, well below the nation’s long-term trend of over 3%. (…)

Against that backdrop, the Fed on Wednesday said it would continue an $85 billion-a-month bond-buying program meant to boost growth and hiring and offered no substantive changes in its stance on how long the purchases would continue.

Fed officials nodded in their statement to a few economic developments of late that could cause them concern if they persist. They described the pace of growth in the first half as “modest” and noted risks to the economy if inflation runs “persistently below” their 2% objective, as it has been. The Commerce Department report showed inflation running near a 1% annual rate in the last three months, well below the Fed’s goal.

Draghi Signals Worst Over as ECB Reiterates Low Rate Guidance

“Confidence indicators have shown some further improvement from low levels and tentatively confirm the expectation of a stabilization in economic activity,” Draghi said at a press conference in Frankfurt today after the ECB kept its benchmark rate at 0.5 percent. Policy makers expect to keep borrowing costs “at the present or lower level for an extended period of time,” he said, repeating a formula first deployed last month.

How confident should we all be on “confidence indicators”? More on that? CONSUMER SENTIMENT SURVEYS. DON’T BE TOO SENTIMENTAL!

I prefer economic facts such as

  • German retail sales declined 2.8% YoY in June following a 0.4% advance in May.
  • Spain’s workday-adjusted real retail sales decreased 5.0% in June after a 4.5% decline in May.

And this from

The data on lending also continues to show signs of weakness. Loans to
nonfinancial corporations, adjusted for sales and securitization, fell 2.3 percent year over year in June versus minus 2.1 percent in May. The equivalent figure for households stood at 0.3 percent year over
year, unchanged from the previous month.

The ECB’s quarterly bank lending survey provided little reason for optimism. It indicated: “looking forward to the third quarter of 2013, banks expect the net decline in demand for loans across all loan
categories to continue.”


Japanese PMI signals near-stalling of manufacturing sector

PMI survey data hinted at a waning impact of Japan’s  economic stimulus plan, dubbed ‘Abenomics’, at the start of the third quarter. After strong survey readings pointed to a further strengthening of GDP growth in the second quarter, the third quarter may bring disappointment to policymakers.

The manufacturing PMI signalled a near-stalling of growth in the sector in July. Alongside an easing in growth of manufacturing output, new orders and exports, the survey found price pressures to have eased again, and that employment started to fall again as companies cut capacity in line with weak demand.

Having risen to its highest for over two years in June, rounding off the best quarter of growth for the manufacturing sector for three years, the Markit/JMMA PMI fell in July. Dropping from 52.3 in June to a four month low of 50.7, the PMI signalled a marked easing in the rate of growth of the goods-producing sector at the start of the third quarter.


Output grew at the slowest rate since February, registering only a modest increase after the strong gains seen throughout the second quarter. New order growth also slowed, registering the weakest increase since March.

imageJuly’s PMI survey showed that, although new export orders rose for the fifth straight month, the latest increase was only modest and the smallest seen over this period. Any increase in competitiveness resulting from the weaker yen is being in part countered by weak economic growth in key export markets, notably China. (…)

Najib Plans Budget Measures After Fitch Cuts Malaysia’s Outlook

Fitch cut its outlook to negative from stable this week, citing the Southeast Asian nation’s rising debt levels and lack of budgetary reform. The credit rating company’s concerns are shared by the government, Najib told reporters at an Islamic finance event in Kuala Lumpur today, without giving details of fiscal measures planned for his October 25 budget address.

“We are just looking at various policy options but we do understand that there’s a need for us to strengthen the fiscal and macro position of the government,” he said. “The actual details will be unveiled shortly, particularly in the forthcoming budget.”

Najib, who is also finance minister, led his Barisan Nasional coalition to victory in Malaysia’s general election in May following a spending spree which saw him raise civil servants’ salaries and give cash handouts to the poor. He also froze planned cuts in state subsidies on essential items and stalled on introducing a goods and services tax. (…)

Indonesia Inflation Rate at 4-Year High as Economy Set to Slow

Consumer prices rose 8.61 percent in July from a year earlier, after a 5.9 percent gain in June, the Statistics Bureau said in Jakarta today. That exceeded all estimates in a Bloomberg survey of 23 economists. Gross domestic product probably grew 5.9 percent last quarter from a year earlier, the first drop below 6 percent since March 2010, a separate survey showed before a report due tomorrow.

Higher costs may hurt domestic consumption that has been the driver of growth in Indonesia, at a time of falling demand for the country’s commodity exports. Bank Indonesia has already raised its benchmark interest rate by 75 basis points in the past two meetings to fight inflation.


some prominent fund managers/commentators are now advocating investing in European stocks, moving some money out of “highly valued” U.S. equities into “better valued” European equities.

ISI tries to support this notion with this chart on Price/Sales.


My own observations:

  • U.S equities P/S is above the historical mean but so is France and Germany.
  • The Stox600 P/S ratio is somewhat below its mean but within a very narrow range.
  • P/S ratios are near useless without profit margins trends. Margins in the U.S. are much, much higher that in Europe, suggesting much better comps on P/Es.
  • The real bargains on a P/S basis are obviously in Spain and Italy. These countries may be where the U.S. was in early 2009 but their economic, financial, fiscal and political complexion is far different and much less comfortable than that of the U.S. I see no reason for Spanish or Italian companies selling at P/S ranges so much above German companies. Why should Spain P/S be similar to the U.S.?
  • Why would anybody want to invest in France?
  • The U.K. market does look appealing, however.


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