Jan 5, 2016. Q4 GDP estimates revised lower in spite of booming gun sales
–Heck of a way to start the year. Global stocks trailed China lower with most US indices down 1.5 to 2%. DJ Transports closed at their lowest level since early 2014 and are now around 20% off the high from the start of last year. Bad PMI in China was followed by weak Mfg ISM in the US at just 48.2, lowest since 2009. Prices paid were just 33.5, also lowest since ’09. JPM cut their Q4 growth estimate from 2% to 1%, while the Atl Fed GDP Now forecast was slashed from 1.3 to just 0.7%. Keep in mind that the original Atlanta Fed estimate in early Nov was as high as 3% and as recently as mid-December was 2%. And there’s no bad weather to blame.
–Unsurprisingly, there are reports that China is intervening to hold up stocks after yesterday’s 7% rout. I saw an interesting contributing factor regarding the sell off, which is that a rule instituted last year to prevent large shareholders from selling is set to expire January 8, leading some to step in front (Daily Shot). I would also guess that the Chinese authorities might want to have words with front runners. “Hey, where’d they go?”
–Besides paper financial claims, real commodities also sold off. March Corn and Wheat made new lows, beans within a whisper. Maybe buying farmland with leverage wasn’t such a great idea after all.
–For me, the broad points regarding China are the following: as the currency weakens, China’s mfg exports again become cheaper, regaining market share from other Asian nations, and imparting a disinflationary cloud. The Chinese gov’t is clamping down on financial outflows, which cuts off investment flow into US assets. The end of US QE has forced the markets to price risk more realistically…probably near the end of that process at this point but no way to know for sure. And the Fed continues to jawbone about further removing accommodation (again, probably close to the end of the ‘tightening cycle’).
