What do you do when you've provided every stimulus possible to drive auto sales ($0 down, 0% APR, 70 month term, no credit, no problem) but growth still slows? Well, you start to play games to manufacture "sales", of course.
The Fed's most boring report, the Beige Book, once again offered its ubiquitous "modest" to "moderate" growth outlook with little insight into whether the Fed is considering any rate hike in the immediate future. On the topic of wages, the Fed said that "Upward wage pressures increased further and were moderate on balance, with more rapid gains reported for workers with selected specialized skill sets. Price increases remained slight overall"
"The only thing keeping the US out of recession is the US consumer (see chart below). It is difficult to say consumption is driving the economy forward ? rather it is like a woodwormridden crutch creaking under the strain of holding up a deadweight economy. This recovery ? the fourth longest in history ? is surely nearing its end."
The August market doldrums were on display on the last day of the month as S&P futures were fractionally lower on non-existent volume, while both Europe and Asia were modestly in the green; ten-year Treasury yields headed for the biggest monthly jump in more than a year while the dhe dollar gained for a sixth day against the yen in the longest winning streak since March. European stocks advanced for a second day, adding to a monthly gain as oil trimmed its advance in the best month since April.
While not as dire as the recent analysis by Deutsche Bank, overnight JPM released its latest recession probability analysis, and - somewhat unexpectedly following the last two stellar job reports and a full court political press that the recovery has rarely been stronger going into the election - now sees a 37% chance of a recession in the next 12 months. This is the highest recession probability calculated by Jamie Dimon's bank during the current economic cycle, and matches the odds first laid out in early July.
The economy is pointing downward with alarms ringing in a wider and broader variety of important economic accounts. From this view, it is no wonder the FOMC overreacted to the May payroll report; that’s all that is left as it is more and more isolated.
European shares advanced, with gains in automakers helping Germany’s benchmark DAX Index turn positive for the year for the first time. Stocks rose around the world, led by emerging-markets, as oil climbed further after its best week since April and traders pushed back bets on higher U.S. interest rates. S&P futures advance and Asian stocks little changed as rising oil prices bolstered investor sentiment.
S&P500 index futures were unchanged (up less than 0.1%) following another modest, low-volume levitation in European, Asian shares in a mostly eventless overnight session; oil comes off following gaining overnight with WTI trading just around $43.
The coming week brings multiple macro data releases for July, including inflation, trade data, retail sales, IP, credit and money supply. A relatively light US data calendar next week with retail sales the main release on Friday but also import and producer prices and Michigan sentiment coming up. Retail sales will be closely watched to assess consumer spending growth for 3Q.
July was a bumper month for US consumer "charging it", with both credit card experiencing its second biggest monthly increase since the crisis, and with auto and student loans hitting new all time highs.