Yesterday’s data exceeded expectations, causing many to again question the pace at which the Federal Reserve will lower interest rates. Some have postulated that Wall Street is determined to “jawbone” the Fed into action for numerous reasons including the proverbial “talking your book” to more nefarious reasons such as perhaps attempting to influence the outcome of the election.
Speaking of which, many believe Moody’s did a masterful job “warning” Washington about its reckless spending, stating it will refrain from making any judgements until after the election. Moody’s has warned…Will Washington act? Probably not unless a crisis occurs.
Changing topics, will the massive stimulus help the Chinese economy? China is an export dominated economy, defined as it is heavily reliant upon its trading partners for its economic health. While this is an extremely dated statistic, about 15 years ago 65% of Chinese production was slated for exports to the West and Japan.
Data indicates trade is down with the US by a significant amount given geopolitical tensions, tariffs and trade wars. Moreover, China is no longer the low-cost producer. The massive stimulus has lifted Chinese shares from their five-year lows, but will it be long lasting?
History is void of any examples of state sponsored capitalism working.
Today the monthly PCE data is released. The core PCE is expected to be 2.7% higher than last year, a nominal uptick from the prior month.
Cost push inflation (wage inflation) is now embedded in the economy, partially the result of political interference. Wage settlements are now around 35% to 40%. This data makes it difficult to declare inflation is back in the proverbial bottle.
How will today’s data influence trading?
Last night the foreign markets were up. London was up 0.46%, Paris up 0.26% and Frankfurt up 0.80%. China was up 2.88%, Japan up 2.32% and Hang Seng up 3.55%.
Futures are nominally lower ahead of the PCE data. The Chinese markets experienced their best week since 2008 on the massive stimulus plans. Is this a sugar high? The 10-year is up 2/32 to yield 3.79%.
