Edge and Odds

The enemy of knowledge is not ignorance, it’s the illusion of knowledge (Stephen Hawking)

It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so (Mark Twain)

Edge and Odds

Invest with smart knowledge and objective odds

NEW$ & VIEW$ (3 August 2016): Careful Out There!

U.S. Consumer Spending Increased Solidly in June Consumer spending increased steadily for the third straight month in June, suggesting Americans have capacity to remain the primary driver of economic growth this year.

Personal consumption, which measures how much Americans spent on everything from haircuts to cars, increased 0.4% in June from a month earlier, the Commerce Department said on Tuesday. Incomes rose more slowly, increasing 0.2% for the month.

Economists surveyed by The Wall Street Journal had expected personal spending to rise 0.3% in June. Income was projected to increase at the same rate.

Consumer spending also rose 0.4% in May and was up 1% in April. Each of those gains outpaced income growth. (…)

The personal saving rate in June was 5.3%, the lowest since March 2015. The rate was 5.5% in May, and above 6% as recently as March. (…)

The personal-consumption expenditures price index, the Federal Reserve’s preferred inflation measure, increased 0.1% in June from the prior month. The index was up 0.9% from a year earlier.

So-called core prices, which exclude the volatile categories of food and energy, also rose 0.1% from the prior month and were up 1.6% from a year earlier. The annual core reading has been consistent since March.

Bless American consumers. They boosted their real expenditures at a 4.9% annual rate in Q2 even though real income rose only 0.8% a.r.. Remarkable and very timely.

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But for how long?

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FYI, the PCE deflator rose at a 2.4% annual rate in Q2, core PCE: +2.0%.

Now this, just to make you understand that eco data should not be the foundation of your investment strategy…

…and that this data is the basis for the Fed’s monetary policy…

Auto U.S. Light Vehicle Sales Rebound

Total sales of light vehicles during July jumped 6.8% versus June (1.7% y/y) to 17.88 million units (SAAR). Sales had declined in four of the prior five months, and the latest level was the highest level since November 2015. Seasonally adjusted data were revised back through 2015.

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Still looks like a cyclical top (chart from CalculatedRisk):

VW Warns of Plunge in China Industry Sales If Tax Cut Lapses

Volkswagen AG said industrywide demand in China will plunge if a tax cut due to expire at the end of the year is allowed to lapse. (…)

China’s Top Economic Researchers Call for More Monetary Easing

In a rare public comment on monetary policy, researchers at the National Development and Reform Commission said interest rates and the required reserve ratio for banks should be cut when appropriate, according to a statement on the commission’s website on Wednesday. The section of the report about rate and RRR cuts was later deleted.

The research office is an advisory body of the commission — the main government agency for economic planning and reform — and doesn’t have direct power to set policy. The NDRC usually doesn’t make public commentary on monetary policy, which is under the purview of the central bank.

Researchers also called for implementing “proactive” fiscal policy and making investment more effective amid downward pressure on spending. China should encourage private firms to raise money by selling bonds, keep pressing to remove excess capacity, promote healthy property investment and keep reducing excess inventories of housing, the NDRC researchers said.

Here’s What U.S. Executives Are Saying About Brexit
OIL

This from The Daily Shot:

EARNINGS WATCH
  • 362 companies (80.9% of the S&P 500’s market cap) have reported. Earnings are beating by4.5% while revenues are surprising by 0.4%.
  • Expectations are for declines in revenue, earnings, and EPS of -0.8%, -4.1%, and -1.9%, respectively.
  • EPS is on pace for -1.0%, assuming the current beat rate for the remainder of the season. This would be +3.7% excluding Energy and the Big-5 Banks. (RBC)
SENTIMENT WATCH
Bulls Made Skeptics as S&P 500 Rallies Past Wall Street Forecast

One of the safest assumptions on Wall Street is that however high stocks have climbed, professional forecasters will say they can go higher. That’s not the case now. (…)

BTW: US transport index is down over 4% in the last five days – not a good sign for those who follow the Dow Theory (The Daily Shot):

CAREFUL OUT THERE!

In spite of ok earnings, equities are acting bad. MACD is declining and the 200-d m.a. is 5.2% below. And there is this new threat:

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Remember this? A Powerful Combo: the Rule of 20 and the “120 Yield Spread”

Hmmm…

EUROZONE COMPOSITE PMI RISES TO 53.2

The rate of eurozone economic expansion ticked higher at the start of the third quarter. This was signalled by the final Markit Eurozone PMI® Composite Output Index rising to a six-month high of 53.2 in July, above the earlier flash estimate of 52.9. The headline index has now signalled growth for 37 successive months.

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The rate of expansion in manufacturing production steadied at June’s six-month high. Growth of service sector output improved slightly but remained slower than that seen at manufacturers.

Although the latest data signalled a solid and steady pace of expansion, national data suggested that the upturn was uneven by nation. Growth was primarily driven by an accelerated rate of output expansion in Germany, the fastest during the year-to-date. Rates of growth moderated in Italy and Spain, whereas France continued to hover around the stagnation mark.

July saw the trend in euro area job creation strengthen, with employment rising at the fastest pace in almost five-and-a-half years. The steepest increase was registered in Spain, with the pace of expansion holding steady at June’s 11-month high. Jobs growth improved to a near five-year peak in Germany and a near nine-year record in Italy. Brighter news was also provided by France, where employment edged up following losses in each of the prior two months.

Average input prices in the euro area rose at the quickest pace since July 2015. Service providers saw a steeper increase than manufacturers, mainly due to rising  staff costs. Manufacturing purchase prices increased for the first time in a year, reflecting higher commodity prices and the weaker euro exchange rate.

July also saw average output charges decrease at the slowest pace during the current ten-month period of decline. Negligible reductions were seen at manufacturers and service providers alike. Germany and Spain both reported increased output charges, whereas price reductions were seen in France and Italy.

The eurozone service sector expanded again during July, taking the current sequence of increase to three years. The final Markit Eurozone PMI® Services Business Activity Index posted 52.9, up slightly from June’s 17-month low of 52.8 and the earlier flash estimate of 52.7. However, the rate of expansion signalled was still among the weakest registered over the past year-and-a-half.

All of the ‘big-four’ national service economies reported growth of business activity, incoming new orders and employment during July. However, optimism regarding future performance fell to a 19-month low, with business confidence easing across Germany, France, Italy and Spain.

Output growth improved in Germany and Italy, with Germany seeing the strongest increase overall. Spain was in second position, despite seeing growth ease to a five-month low. France also edged back into expansion territory, following a mild contraction in the prior month.

Brighter news was also provided on the employment front, with the pace of job creation in the euro area service sector rising to a near eight-and-a-half year high.
Faster rates of increase were seen in Germany (seven-month high) and Italy (107-month record) and employment rose in France following losses in June. Spain registered solid job creation, with a rate of increase close to the prior month’s nine year peak.

July saw a slight decrease in average prices charged by eurozone services companies, extending the current sequence of decline to ten months. Germany and Spain reported increases in selling prices, in contrast to further reductions in France and Italy.

Meanwhile, average input prices in the eurozone service sector increased again. The rate of inflation was little-changed from that recorded in the preceding survey period.

Chris Williamson, Chief Economist at Markit:

However, the survey is still indicating only a modest 0.3% quarterly rate of economic growth at the start of the third quarter. Such a meagre pace of expansion will inevitably fuel speculation about what the ECB could and should do to boost growth, and when.

The upturn is being led by surging growth in Germany, where a 0.5% pace of expansion is being signalled. However, France continued to stagnate, acting as a significant drag on the region. Growth has also slowed in Spain and Italy, in both cases indicating that political uncertainty is hurting businesses. While the pace of expansion in Spain has merely slowed to around 0.6% in July, Italy is growing at a sluggish 0.2% pace.