As if we needed another reminder of the dominant place the Federal Reserve has on markets was the tick for tick move in stocks and bonds to every utterance of Jay Powell following every word change in the statement. Also, let’s be clear, the Fed is completely winging it. All I implore the Fed again is please don’t repeat the mistakes of the BoJ and ECB and get trapped in the vortex of continuously cutting to the point where the reaction function in one’s economy becomes negative. Of course, the ‘mid cycle’ adjustment message Powell tried to convey is one looking to avoid that but you can see where this is going. The dollar rallied, the yield curve inverted and a lower cost of capital will not matter to an economy where the cost of capital was no impediment to anything anyway. So I’ll raise the Vietnam analogy again, please Fed, don’t keep sending in rate cuts hoping for a different result if you don’t achieve the soft landing we all hope you can accomplish. As for Trump’s desires with monetary policy, again look at the BoJ and the ECB and see how that’s working out.
By the way, with the 1995 analogy of a mid cycle cut in rates people have to remember that it was just 4 years into an economic expansion, not 10+ that we are in now. Hope springs eternal when faith in the Fed is as high as it is.
Here is a quick rundown of the manufacturing PMI’s we saw today overseas. China’s private sector Caixin PMI did rise .5 pt to 49.9. The estimate was for no change. The rest in Asia were mixed: Taiwan 48.1 vs 45.5, Malaysia 47.6 vs 47.8, Japan 49.4 vs 49.6, Thailand 50.3 vs 50.6, South Korea 47.3 vs 47.5, India 52.5 vs 52.1, Indonesia 49.6 vs 50.6, Vietnam 52.6 vs 52.5, and the Philippines 52.1 vs 51.3. The common thread? Most are below 50.
South Korea confirmed the initial weakness in July exports as they fell 11% in July y/o/y, about as expected. It’s the 8th month in a row with y/o/y declines.
The eurozone July manufacturing PMI was tweaked to 46.5 from the first print of 46.4 and this is down from 47.6 in June. All the major countries have figures below 50 with Germany in particular at just 43.2, France at 49.7, Spain at 48.2 and Italy at 48.5. On the heels of the election victory of Mitsotakis in Greece, their manufacturing PMI rose to 54.6 from 52.4. I’m bullish on Mitsotakis.
Likely captured before yesterday’s selloff, individual investors were all bulled up ahead of the Fed as AAII said Bulls rose to 38.4, the highest since early May, up 6.7 pts w/o/w. Bears fell 8 pts to 24, the least since also early May.
I’m traveling this morning so depending on wifi, I’ll either be quick to comment on the data today or delayed.