Employment in the US is closely watched, especially as the Fed has marked it out as an important factor in how it will judge its stance in monetary policy. Payrolls have improved and the unemployment rate has declined, but structural issues stubbornly remain. The Fed will be alert to these issues, and thus the bar for the removal of stimulus is very high, despite repeated murmurings of ‘tapering’ and a tightening in monetary conditions.
In the short run, it is difficult to see what can stop equities at this point. Low inflation, central bank support and relatively robust economic data have created a Goldilocks scenario for equities. However, perhaps as a result it is worthwhile looking at what could go wrong. One of the more important intermediate indicators on the equity market is derived from the stock of US margin debt at the NYSE.
Follow this link to watch from the beginning of the interview, or skip to minute 34 on the video below.
The spotlight remained on Portugal the end of last week as EU finance ministers agreed to give the country seven more years to repay its stock of existing loans. Still, despite the words of praise showered on the country the deficit containment record has been a pretty checkered one. The deficit target for 2013 is 5.5% of GDP will not come under the EU 3% level until 2015 at the earliest.
Judging by the comments from most analysts and commentators, global equities are the place to be and equity markets are still doing well. This is certainly true if you look at Japan, but in general it is not exactly correct. On a 1 month basis, even the otherwise resilient S&P 500 is now flat and many stock markets are down significantly. Indeed, despite widespread investor optimism we are now seeing broad based weakness on a monthly basis.
Germany remains the proverbial strong man of Europe, but we are skeptical that this is a fitting moniker. Looking at exports, it is now clear that Germany and thus Europe continues to see weakness. The total value of German exports has now clearly rolled over from its peak in mid-2012, which coincides with the share of total exports going to China.
Our leading indicator for China has turned down further which adds to the impression of an overall weak turn in Chinese growth. We would still term the turning point as intact, but all components of our leading indicator recently came in with negative readings.
France looks increasingly like it is slipping into recession. It is the poorest performing core country – an increasingly inapt label. Highlighting this are the latest PMI numbers. The services PMI, already woefully depressed, slipped lower last month, to 41.9, lower even than Spain’s. The manufacturing PMI was barely much better, falling to 43.9.