Key News
* Ruble Slumps on Devaluation Fears (WSJ)
* U.S. Economy: Payroll Losses, Sllow, Unemployment Rate Declines
(Bloomberg)
* Treasuries Fall Most in Week Since 2003 as U.S. Job Cuts Slow
(Bloomberg)
* Baltic Dry Index Has Worst Week Since October as Demand Slows
(Bloomberg)
The Event Agenda
The Afternoon Run-Down
The jobs data on Friday beat expectations. And the recovery theme received a super charge. Stocks finished up 1.3% and 10-yr notes fell to lowest levels since June, but the dollar was the story of the day. In an environment where the risk trade has dominated since March, any news deemed good has meant bad news for the dollar.
The gears shifted on Friday.
The dollar traded with the recovery theme and with yield. Perhaps this is a sign of a breakdown of this risk appetite inter-market correlation that has held so tightly.
The immediate reaction in the Treasury market and in dollar/yen told the story. Treasuries dropped like a rock and dollar/yen spiked and never looked back—a market expression of the relative economic outperformance and prospective yield advantage. For the other majors, there was an immediate sell off in the dollar…and then the dollar came back strong.
Here’s a screenshot at Friday’s close…
Notice the good news for stocks, yields and the dollar didn’t translate to oil (line 4) and other commodities (CRB Index, line 7). Another divergence from the risk trade correlation.
And here’s the biggest performer on the screen…
{ 1 comment… read it below or add one }
BRIAN
I AM NOT AN ECONOMIST….JUST A STRUGGLING RETIREE WITH LITTLE APPETITE FOR RISK, FEW PLACES TO TURN FOR YIELD AND AN ARMY OF FOLKS ARGUING FOR NEGATIVE INTEREST RATES TO (ARTIFCIALLY) “STIMULATE” GROWTH—SEE EXCERPTS BELOW FROM YOUR 1 AUGUST NEWSLETTER
EXCERPT 1
Even after aggressive rate cuts and other efforts by central banks to pump money into their economies and despite all of the chatter about the Fed’s plans to deal with future inflation … deflation remains the problem, not inflation.
Prices are falling in half of the twenty largest economies in the world!
For instance, as you can see in the chart below, year-over-year prices in the U.S. have fallen the most in 60 years.
WHAT I CAN ALSO SEE FROM THE REFERENCED CHART IS THAT BETWEEN 1969 AND 1989 ALONE PRICES ROSE BY AN AVERAGE OF ABOUT 5 TO 7% YOY—USING THE RULE OF 72 THAT WOULD INDICATE THAT PRICES ROSE BY SOMEWHERE BETWEEN 130% AND 200% DURING THAT TIME PERIOD—IT WOULD BE REALLY GREAT IF YOU COULD DEVOTE ONE OF YOUR COLUMNS TO EXPLAIN WHY THAT PRICE GROWTH WAS OF BENEFIT TO THE AVERAGE CONSUMER, PARTICULARLY THOSE ON FIXED INCOMES–SOMEHOW IT SEEMS THAT SOME LEVEL OF DEFLATION MAY ACTUALLY HAVE AN UPSIDE FOR SOME FOLKS ”
I WAS AROUND IN THE 1980′S AND I WOULD ASSURE YOU THAT INFLATION WAS QUITE A BIT MORE THAN “CHATTER”
EXCERPT 2
Have central banks done enough with interest rates to stop prices from moving lower and to get economic growth back on track?
THIS LAST STATEMENT CONTAINS SEVERAL VEILED ASSUMPTIONS:
1/ THAT, BY DEFINITION, GROWTH (AT ANY COST) IS GOOD AND LOWER PRICES ARE BAD AND
2/ THAT THE CENTRAL BANKS CAN STIMULATE GROWTH BY PROMOTING INFLATION AND “EASILY” PREVENT THE INFLATION GENIE FROM ESCAPING FROM THE BOTTLE
THE FIRST ASSUMPTION I DON’T UNDERSTAND AND THE SECOND ASSUMPTION NEEDS ONLY A QUICK CHECK OF THE INFLATION SPIKES SHOWN ON YOUR REFERENCED CHART TO REFUTE (SEE 1942,48,52,74 AND 79)—NOT TO MENTION THE FACT THAT ALL PRICE INFLATION, LARGE OR SMALL, IS CONTINUOUSLY EMBEDDED IN CURRENT PRICES
I’M SURE, BY THE WAY, THAT “THIS TIME IT WILL BE DIFFERENT” AND WE WON’T SUFFER AN INFLATION SPIKE
NO ONE EVER SEEMS TO DEAL WITH THIS SIDE OF THE DISCUSSION–POSSIBLY YOU WILL FIND TIME TO ENLIGHTEN US NON ECONOMISTS AS TO WHY CONTINUALLY HIGHER PRICES ARE ACTUALLY GOOD FOR US—JUST TO GET CLEAR ON THE LOGIC WOULD BE HIGHLY BENEFICIAL TO ME
THANK YOU AND KEEP UP THE EXCELLENT WORK ON THE NEWSLETTER
BILL P
Source: Bloomberg