Recap 8-27-13: Quick Thoughts


Syria was the topic du jour as there was a sharp risk-off move today. I’m not a Mid East specialist by any means, but it’s hard to make a substantive claim that the events there will have a measurable impact on G20 macroeconomic variables over the intermediate term. (Readers are welcome to disagree!) The increase in oil prices will certainly be a drag, but with the convenience yield already substantial, stockpiles elevated, and US production still ramping up, it’s hard to say that this is that big of a deal. Brent prices remain ~$5 below the high from 6 months ago, for example. A more likely explanation is simply that asset prices are responding to some tentative signs of weaker data, and the Syria news offered a nice catalyst or ‘excuse.’ There has been enough negative data surprises over the past couple weeks to suggest that it’s more than just noise, as Citi’s Economic Surprise Index has turned south for the first time since this Spring.

Only time will tell how the data will actually evolve, but I’ve noted in the past that consensus forecasts of GDP growth in 3Q and 4Q has not budged despite the sharp jump in interest rates, which suggests that downside surprises are more likely. And with many market players apparently short or underweight fixed income globally, it will not take a whole lot to get some retracement in that asset class. The outlook for equities is a bit murkier, but it’s probably worth noting that high single digit corrections over the course of a few weeks in the context of a larger bull market are fairly common. With the S&P off ~5% and 4 weeks from the highs, some further, measured, downside is likely.

Separately, this was an interesting read:

After subsidies, solar power is competitive with grid power costs in large parts of those markets. Some areas in the Northeast will reach a similar “grid parity”—where residential solar is equal in cost to power from a utility—within three years; a majority of states could get there in 10 years or less, according to data from a variety of green energy and regulatory sources. A July report by Navigant says that by the end of 2020, solar photovoltaic-produced power will be competitive with retail electricity prices—without subsidies—“in a significant portion of the world.”


  • the US will launch a series of limited cruise missile strikes from ships based in the Mediterranean w/the purpose of “deterring” Assad from again using his chemical weapons. Any US campaign would be brief (perhaps as short as 48 hours), would not include wider follow-on actions (such as occurred in Libya back in ’11), and the Pentagon will not be putting manned jets in the air over Syria. – WSJ, WP
  • German IFO increased to 107.5 vs 107 exp and 106.2 prev
  • US Consumer Confidence increased to 81.5 vs 79 exp and 80.3 prev
  • Summers on track to become Fed chief according to John Harwood on CNBC – “a source from Team Obama told CNBC that Larry Summers will likely be named chairman of the Federal Reserve in a few weeks though he is "still being vetted" so it might take a little longer
  • FX reserves have dropped by nearly ~$14B since the end of Mar and are set to dwindle further – FT

Upcoming Data:

  • Wed: BoE’s Carney Speaks, US Pending Home Sales, Australia Private CapEx
  • Thu: Italy Consumer Confidence, US Jobless Claims, Japan Mfg PMI, Jobless Rate, CPI, IP, Australia Private Sector Credit
  • Fri: Month End, Japan Housing Starts, UK Nationwide House Prices, Italy Unemployment, EU Unemployment, CPI
  • Mon: US holiday, China Mfg PMI, AU Mfg PMI, AU Building Approvals, EU PMI, China Non-Mfg PMI, Australia Current Acct, Retail Sales
  • Tue: RBA, US ISM, AU GDP