G3 Recap 8-29-11

Main Items:

  • US Core PCE rose to 1.6% YoY in July vs 1.5% exp and 1.3% prev
  • Dallas Fed Manufacturing Activity declined to -11.4 in Aug vs -9 exp and -2 prev.
  • Estimates for total losses from Hurricane Irene runs in the $3-$7bn range
  • BAC sold its 8.3bn investment in China’s CCB to a group of sovereign wealth funds.
  • Conforming mortgage sizes are set to decline on 10/1/11 from the present $729k to $625k unless Federal action gets taken to delay the legislation.

Overseas:

  • German CPI rose 2.4% YoY in August vs 2.5% exp and 2.6% prev

Commentary:

  • So far, regional manufacturing indices are suggesting a 44 ISM print on Thursday, with a standard deviation of 2 pts. We will get more clarification after we get the Chicago PMI on Wednesday.
    As many macro punters know, the ISM is one of the best indicators for the cyclical direction of risk assets, as the chart below shows.

    Since mid 1998, a falling ISM print below 48 has preceded an average monthly S&P decline of 2.3%.

Advertisements

2 thoughts on “G3 Recap 8-29-11

  1. We’re probably using more or less the same models for ISM (mine shows a print of 45 with sd 2), so let’s not forget that the regional-ISM relationship has been kind of bumpy in recent years (sd 3 for models constructed with 2008+ data, more for longer-term data) and this latest economic shock was pretty artificial, with politicians basically creating it out of thin air. I’d say current consensus of 48.9 isn’t that far-fetched, though something closer to 48 is perhaps more real.

    Doesn’t mean we can’t get a 44-45 print, of course.

    1. Hi Sid – I agree that the politicians had a big impact, although I would also argue that the fundamental data was weak to start with. Since March, most of the weakness was explained away by the oil spike + earthquake, but that explanation no longer suffices, as the data has just been too weak for too long.

      You are right that regional ISM’s has not had absolute correlation with the headline print, but at this point I am more inclined to trust the model, as historically consensus is usually the most off around turning points in the cycle.

      Anyway, thanks for your comments. We’ll see where ISM prints on Thurs!

Comments are closed.