Recap 9-04-13


We got some pretty strong auto sales prints today. As a result, treasuries sold off across the curve. 2y yields hit 46bps, the highest level since mid 2011. Eurodollar futures are now pricing in 2 hikes by 1Q 2015.

Auto sales has been providing a strong boost to US growth for much of the recovery, but there are a few signs that suggest that this tailwind may be ebbing. Two items that support this:

First, the Chicago PMI (which is heavily weighted toward Autos) printed below the headline ISM print last month, which is fairly unusual outside recessions. In fact, a 3m average read of the Chicago PMI is at levels usually seen in mid cycle slowdowns.

Second, both the auto loan borrow rate (orange, inverted) as well as auto sales (in white) appear to be stabilizing. The borrow rate of course is stable due to the move in rates markets, and the sales rate is now just below pre-recession levels.

The low rates may have been especially helpful over the past year. According to Edmunds, the Lease penetration rate increased to 25% last November and has remained elevated since:

Separately, I think I’ve now seen at least 15 different articles on how historically September is a bad month for stocks. It may well be the case again this year, but when a statistic like this is repeated this often, it probably makes sense to bet that it’s priced in.


  • US Total Vehicle Sales hit 16.02mm SAAR, vs 15.8mm exp and 15.6mm prev. This is the highest print since May 2007
  • BoC kept policy rates unchanged as expected
  1. Recent data, however, point to slightly less momentum overall than anticipated.
  2. Uncertain global economic conditions appear to be delaying the anticipated rotation of demand in Canada towards exports and investment.
  3. Looking through the choppiness of the recent data, the level of Canada’s GDP is largely consistent with the Bank’s July forecast. The output gap is expected to begin to narrow in 2014.

EU Service PMI was revised to 50.7 vs 51 prev. Weak Italian Services was offset by a strong French print. UK Service PMI improved to 60.5 vs 59.7 exp and 60.2 prev China’s HSBC PMI rose to 52.8 from 51.3 in July. AU GDP rose 0.6% in 2Q vs 0.5% exp Australia Service PMI declined to 39 in Aug vs 39.4 prev Reuters reports that the RBI has been intervening in the FX market very aggressively. Upcoming Data:

  • Wed: Australia Trade Balance
  • Thu: BoJ, BoE, ECB, US ADP Employment, Jobless Claims, ISM Non-Manufacturing
  • Fri: US Employment, Canada Employment
  • Weekend: China Trade Balance, CPI, Money Supply, Japan BoP, Australia Home Loans
  • Mon: Japan Eco Watchers Survey, Canada Building Permits, UK RICS, Japan Money Supply, Australia NAB Business Confidence
  • Tue: China IP, Retail Sales, Canada Housing Starts