Will the Fed Be Spooked by Easing Financial Conditions?
Easy financial conditions to weigh on Fed’s decision
Highlights
• Easy financial conditions to weigh on Fed’s decision
• Everyone focuses on Tech, but the “real economy” is struggling
• Market leadership shifts over time — it’s hard to stay on top
• IMF sees inflation falling faster than expected
While We Were Sleeping
Another mixed start to the day. Even within the U.S. equity market, Dow futures are in the green while Nasdaq futures are in the red column — as some of the tech heavyweights have failed to impress from their just-released earnings results (Google’s ad revenues falling well short of expectations). The vagaries of having too much growth priced in. At the same time, the Dow Theory advocates will surely not be cheering the fact that as the Industrials make new record highs, the Transports, in a major non-confirmation, are still down -7.5% from their prior peak. While European markets have turned in a fragile +0.1% advance here in the early going (well off the highs), Asia Pacific had a rough session: China’s Shanghai Composite (-1.5; -6.3% YTD), Hong Kong (-1.4%; -9.2% YTD), Taiwan (-1.1%; flat for the year), Thailand (-0.6%; -3.6% YTD), and Korea (-0.1%; -6.0% YTD).
The catalyst for this down-move in most Asian stock markets was the disappointing 49.2 reading on the Chinese manufacturing PMI for January (was 49 in December). Adding to the anxiety over the state of the Chinese economy was the consumer sector, as Q4 average salaries in 38 major cities deflated -1.3% on a YoY basis. Also have a look at the page A7 column in the WSJ (China Factory Slump Persists) as well as the page B1 story in today’s NYT: China’s Real Estate Crisis ‘Has Not Touched Bottom’ (home sales in December were down an eye-popping -17.1% year-over-year and real estate development was off -9.6% — and there remains an overhang of 20 million units of unsold homes waiting to be finished that need $450 billion of funding to complete!). Meanwhile, India (+0.7%) and Japan’s Nikkei 225 (+0.6%) bucked the negative trend (the latter is now up +8.4% for January).
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