Still traveling and posting sporadically.
U.S. Leading Economic Indicators Continue to Strengthen
The Conference Board’s Composite Index of Leading Economic Indicators increased 0.6% (6.3% y/y) during July. The improvement followed an unrevised 0.5% June gain and an upwardly revised 0.1% uptick. A 0.4% increase had been expected in the Action Economics Forecast Survey. The index is comprised of 10 components which tend to precede changes in the overall economy.
Amongst the components of the index, most made a positive contribution. Improvement was led by fewer initial claims for unemployment insurance, the leading credit index, a steeper interest rate spread between 10-Year Treasuries & Fed funds and a higher ISM new orders index. In addition, average consumer expectations for business/economic conditions contributed positively. Also, higher stock prices, more building permits, more orders for consumer goods & materials and an increased number of new orders for nondefense capital goods excluding aircraft had positive effects on the leading index change. The average workweek for production workers had a neutral effect.
Three-month growth in the leading index picked up to 5.2 % (AR), but remained below its 10.3% December 2017 peak.
The Index of Coincident Economic Indicators increased 0.2% (2.4% y/y) in July after a 0.3% June gain. (…)
Three-month growth in the coincident index of 2.3% (AR) has been fairly steady recently and was improved from 1.6% growth in Q1.
The Index of Lagging Economic Indicators declined 0.2% (+2.3% y/y) last month and reversed June’s increase. It was the first decline in the index since March. (…)
Three-month growth in the lagging index fell to 1.9%, its weakest growth since March and down from 4.3% in June. (…)
From Advisor Perspectives:
As we can see, the LEI has historically dropped below its six-month moving average anywhere between 2 to 15 months before a recession. The latest reading of this smoothed rate-of-change suggests no near-term recession risk. Here is a twelve month smoothed out version, which further eliminates the whipsaws:
FIBER: Industrial Commodity Prices Move Lower
The Industrial Materials Price Index from the Foundation for International Business and Economic Research (FIBER) fell 3.7% last month and extended the retreat in prices since the peak two months ago. The decline left the index unchanged over the last twelve months. During the last ten years there has been a 65% correlation between the y/y change in industrial commodity prices and the y/y change in factory sector output. (…)
EMU Inflation Picture Gets as Dicey as the Outlook for EMU Policy
The EMU inflation picture has begun to get dicey with headline inflation at or above 2% for two months running and the core rate (excluding food and energy) running at a pace closer to 1%.
Headline inflation, the formally ‘targeted’ HICP measure, shows a progression to a higher pace as inflation rises from a pace of 2.1% over 12 months to 2.2% over six months to 3.1% over three months. Meanwhile core inflation is dead in the water at a pace of 1.2% over all those same horizons. This, of course, gives EMU members plenty to argue about. (…)
U.S. Moves Toward New Tariffs on China Despite Trade Talks Two approaches reflect split in Trump administration on how to deal with Beijing; American companies complain about levies at hearings
(…) The twin administration initiatives—pursuing tariffs on $200 billion of Chinese goodswhile relaunching talks to scrap tariffs—underscore a split within the U.S. administration, with negotiators in the U.S. Treasury Department offering a carrot, while the office of the U.S. trade representative threatens with a stick, both with the approval of President Trump, according to people familiar with the administration’s internal deliberations. (…)
Witnesses underscored the difficulty of trying to find suppliers outside China for their products. In some cases, executives and industry representatives said that the components or products are only available in China or cautioned against the time and resources necessary for establishing a supply line in a different country, including the U.S. (…)
So far, the administration has levied 25% tariffs on $34 billion in Chinese goods—mainly machinery and electronic components—which was matched dollar for dollar by Beijing. On Thursday, 25% tariffs are set to go in place on another $16 billion of Chinese imports, which Beijing also promises to match. (…)
On Wednesday, Chinese negotiators are due to start talking with a U.S. team led by Treasury Undersecretary David Malpass, at the invitation of the U.S. The negotiations are aimed at finding a way for both sides to address the trade disputes, the officials said, and could lead to more rounds of talks. If all goes well, the two sides would figure out a way to end the trade dispute ahead of planned meetings between Mr. Trump and Chinese leader Xi Jinping at multilateral summits in November, said officials in both nations.
But there are plenty of obstacles ahead, particularly if the U.S. goes ahead with its tariffs plans and China hits back, as it has threatened, with tariffs on another $60 billion of U.S. goods. That would mean $110 billion of U.S. exports to China—85% of the total—would be subject to tariffs. Such an outcome is likely to increase pressure on Mr. Trump to go ahead with even more levies.
Trump Auto Tariffs Face Delays Amid Europe, Nafta Talks The Trump administration is pushing back its timetable for completing a controversial study into whether to impose auto tariffs, as officials negotiate with some of the world’s largest car exporters.
(…) in an interview Monday with The Wall Street Journal, Mr. Ross said it is now “not clear the report will be out at the end of the month.” He said the delay was “in view of the negotiations” ongoing with the European Commission, Mexico, and Canada.
Mr. Ross also suggested that it was taking longer than anticipated to sift through the reams of material submitted by auto makers in the U.S. and around the world opposed to the prospect of new tariffs pushing up the costs to consumers and disrupting global supply chains.
Mr. Ross declined to set a new timetable, noting that the law used to justify the report doesn’t require any findings until next year. (…)
Asked when the report would be completed, Mr. Ross declined to give a new date, adding that the 1962 national security tariff law being used to justify the probe “gives us 270 days from when we started, which gets us into next year.” The legal deadline for a report is mid-February. (…)
Maybe that has to do with recent polls showing Republicans trailing behind Democrats in the House and a tight race at the Senate.
Did you miss AMERICA CURSED?
EARNINGS WATCH
U.S. Stocks Poised to Enter Longest Bull Market U.S. stocks are on the verge of surpassing their longest-running rally, ratifying a market rebound that began in the ashes of the financial crisis and defying those who have questioned its staying power.
I started blogging On Jan. 3, 2009, trying to male sense, for me, of the mess the world was in. Writing compelled me to be thorough and objective, really for my own financial sake. That led me to conclude in early March 2009 that there was virtually no more downside risk for equities, that valuation were down to generational lows and that all that was needed was more positive economic news to make investors less worried (S&P 500 P/E Ratio at Troughs: A Detailed Analysis of the Past 80 Years).
Then earnings took off, more than tripling since then while valuations almost doubled.
At this point, valuations are slightly (6%) above the “20 fair value level” on the dependable Rule of 20 as earnings continue to win the race with inflation.
For how long?
While companies keep beating on Q2 results, pre-announcements for Q3 are a little worse than at the same time during Q2’18 and Q3’17.
