EmailCredit and monetary considerations continue to trump bad economic data. S&P futures indicate a near flat open despite more signs of global economic weakness.
Yesterday's release of the FOMC minutes revealed that more members were inclined toward further quantitative easing at the August 1 meeting than at previous meetings. There weren't a majority of votes for action, but somehow the fact that more members leaned that way led many major publications to assume that imminent action is now "likely."
Perhaps, but there still have to be voting members that change their position to get to a majority and that may or may not happen. The percentage in favor of easing is not something that trends, like a seasonal factor, or a price on a chart. The assumption that easing is now almost certain was a much too optimistic interpretation. These were minutes from weeks ago, not some secret Fed signal of a cryptic game-plan. Bernanke's comments on August 31 will be a far better indication of current Fed leanings.
Nevertheless, the stock market remains buoyant on the belief that Fed action will boost the economy, or at least stock prices. In this environment, worrisome economic data has little impact.
The worst news today is that the purchasing managers survey in China fell to a scary-low 47.8 in August. This is the tenth straight month below 50 (a number below 50 is intended to reflect contraction in manufacturing). These surveys get more attention than they deserve, but ten months of below 50 can not be ignored. The Chinese economy is clearly slowing down.
That same index for Europe rose from 44.0 in July to 45.3 for August. That reading of well below 50 signals an economy in retreat but the index was higher than expected. It is pretty pathetic when a reading of 45.3 on a purchasing managers index is considered good news.
Global stock markets have improved the past two months on reduced risks in the credit markets due in part to expectations of central bank action. That makes sense. But to continue to ignore the worsening economic data from around the world is almost mind-boggling.
The news in the US is only slightly negative. New claims for unemployment for the week ended August 18 rose to 372,000 from 368,000 the prior week. This data covers the week in which the August payroll survey was taken. An increase in payrolls of approximately 150,000 is likely.
Hewlett-Packard reported revenue below expectations on a decline of 4.9% from last year. Profits beat forecasts, but the stock is trading lower pre-market.
European stock exchanges are fractionally lower, but the Spanish index is down 1.7%. The yield on the Spanish 10-year is up to 6.43% from 6.28% yesterday.
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