Up and then down like a rock in water the market did go this morning. Arriving first and driving the market up was the news that Putin was playing nice again and Iraq was finding its way to a coalition government.
- Emerging-market stocks rose for a fourth day as President Vladimir Putin said Russia will do all it can to end the Ukraine conflict, spurring speculation tension will ease.
- Tribal leaders and clerics from Iraq’s Sunni Muslim heartland who rebelled against outgoing premier Nuri al-Maliki’s Shi’ite-led government are willing to join the new administration if certain conditions are met, a spokesman said on Friday.
Iraq has not reversed itself this morning, but it appears Russia has, as the news has come out that Ukraine destroyed some Russian military vehicles trying to cross over its border. Hence, I bring you the rock in the water metaphor for the market.
The worry here is Europe. Even if Putin does not actually invade Ukraine, his blustering and feinting are having an effect. The economic damage to Europe is now becoming apparent, especially to Germany. Yup, it is war, as war has now become – economic.
Now, it might also be the rock sinking this morning came about because of the incoming US economic data.
- U.S. factory production increased in July at the fastest in five months as capital spending climbed and motor vehicle demand surged while wholesale prices rose at a slower pace and consumer sentiment fell.
The above sums it up – once again, the date is mixed, but none of it is bad. True, the University of Michigan survey showed consumer sentiment fell …
- A closely watched-gauge on consumer sentiment fell to its lowest level since November in August, while expectations were for it to tick higher.
While the above sounds really bad (lowest level since November), the fact is that it fell modestly.
- The overall index on consumer sentiment came in at 79.2, down from a final reading of 81.8 the month before.
As to factory production and wholesale prices, well, the facts of those matters are good news indeed. Starting with the factory business …
- The nation’s factories reported that Capacity Utilization came in at 79.2%, which was in line with the expectations for a reading of 79.2%.
Fine and dandy, right? On the surface, yes, but underneath, buried deep in the numbers, are some facts that suggest a couple of important things about the state of manufacturing in America and the state of the US economy.
- The current reading on Capacity Utilization is the best since June 2008.
Now, while the above sounds really good (and it is), some could argue that it is not as good as it seems.
- Capacity Utilization remains slightly below its long-run (1972-2013) average of 80.1. This indicates there is still some production slack in the economy.
I, on the other hand, could argue (and will) the production slack is present after five years of economic recovery in the US, but, even so, it has been and is moving in the right direction – upward. I could also argue (and will) that a bit of slack right now is a good thing.
Wages are on the rise as I write, but we do not want them to rise too fast, as rising wages are the essential ingredient in an inflationary environment. Slack is good right now. We do not need the Fed forcing interest rates up to early or too fast because of inflation fears. So, a bit of slack in the economy for a bit of time keeps inflation tame and the Fed at bay, which sets the stage for a “perfect storm” of rising wages with higher employment and lower consumer prices, which brings us to the wholesale price business …
- Gasoline prices fell 2.1 percent last month after rising 6.4 percent in June.
Yup, I suggested that gasoline prices would drop, and they have precipitously, despite what is going on in Russia, the Middle East, Africa, and Iran. On June 20, the RBOB price (futures price) of gasoline hit $3.13 (fractionally close anyway). This morning, it is $2.69. My calculations tell me the drop in price is some 14%. By any market standard, this is a big drop, as is the fall from 6.4% up to 2.1% down.
The market is freaking out, again (check the VIX – up 2 points as of now), and that is just the way it is. On days like this, the computers take over and sell is the order of the day. Interestingly, though, even with the Ukrainian escalation news the flight to safety does not include gold. It is down this morning. So, with the VIX up and gold down, what is one to make of the market today?
Oops! One more look at the market shows it reversing, the VIX dropping, and gold dropping even more. My question still stands.
Trade in the day; invest in your life …
