Sept 1. POTENTIAL effects from China…
At this moment, we are following developments in the Chinese economy and their actual and potential effects on other economies even more closely than usual. Stanley Fischer, from his Jackson Hole speech.
–What are some of the potential effects? As an example consider that S Korea’s exports in August, (often considered a canary in a coalmine), fell 14.7% in August. China’s Caixin PMI was only 47.3. Global stocks are down, and US treasuries, having suffered a weak close and early downside follow-through last night, are now higher. ESU -47.00 as of this writing. Still think the Fed is going to tighten in 16 days?
–The big news yesterday of course was oil, which rallied 30% from the absolute low to high in just five sessions. However, it’s having a setback this morning due to China. In terms of other broad trends, many have NOT reversed. For example, the Brazilian real is still making new lows, and other EM currencies remain under smothering pressure. Going into today’s Construction spending data, lumber is at multi-year lows.
–Eurodollar curve was slightly flatter yesterday with reds -2.125 and golds -0.75 for a pack spread of 134. Volume yesterday was fairly light, with bunds leading the way lower for the US, supposedly due to China selling.
–News in the US today includes mfg PMI expected 53 and ISM at 52.8.
