Today’s Issue Cluster: Fed
- The Fed is meeting half its dual mandate for employment: unemployment rate at a cycle low, job opening rate at new high, quit rate robust
- The Fed has yet to deliver on the other half: wages lag, core PCE below 2%
- The markets are pricing out a September hike, with the odds now 26% in Federal fund futures
- Central banks in emerging markets say the Fed should start now, from India to Mexico, Peru, and Indonesia ... as well as Switzerland
- Emerging market yields rose in the Fed's last tightening cycle ... while stocks held up fine
Best of the Rest
Mobiles – Apple Chipmakers Slip; Who Wins In IPhone, IPad, TV?
Pipeline – Russian gas projects clogged
Pharma – New Cholesterol Drugs Are Vastly Overpriced
- Covering the Short on US Poultry Producers
The Trade-Weighted Yuan Is Still Up YTD
Connecting Some Dots Between US Housing Data and MRP's Housing Themes
- Sticking with UK Stickbuilders
- Re-Affirming Long Europe Stocks
MRP's roster of Active Themes
MRP's latest monitors: Macro, Sector, and Country
Joe McAlinden's Market Viewpoint
|MAJOR DATA POINTS||Top|
India – Strongest of the Weak
India’s economy is forecast to grow faster than its so-called BRIC counterparts—the countries including China that were once seen as driving growing global growth. India’s once-crippling trade imbalances are shrinking, and the country’s currencies and stocks have lost less in the recent selloff than countries that have staked their growth on supplying China with commodities. WSJ
India – ‘Warned to beware gloating’
Economist Ashoka Mody, in a blog for Bruegel, a European think-tank, is more scathing, condemning Indian official statisticians for controversial data that have “created the dangerous illusion that Indian GDP is growing rapidly when all indicators point to the contrary”. Corporate profitability in India is abysmal and businesses have virtually stopped investing, Mr Mody adds. FT
To compensate for weak private investment, New Delhi this year has planned for a burst of infrastructure spending. ...
Most of that construction would begin after the monsoon season ends in September. It would bring total highway spending for the fiscal year to $15 billion, nearly twice what was spent in the previous 12 months. Before the year is out, an official committee is expected to recommend stimulus of another sort: a big pay increase for the tens of millions of state- and federal-government employees who make up 61% of India’s registered labor force. WSJ
India – Indicators That Contradict GDP Figures
RBI – Growth already within range of full-year target
The June-September monsoon — a key uncertainty for economic projections because less than half of India’s farmland is irrigated — is nearly complete. Rainfall was 11 percent below normal in the June to August period, though the timing and distribution are important for output. The acreage sown is marginally greater than last year for most major crops. b
The quits rate remained at 1.9% for the fourth straight month. A high quits rate suggests that workers have enough confidence in their work prospects to leave their jobs voluntarily, a sign of a healthy labor market....
The growing gap between the number of openings and the number of hires could illustrate that employers are having trouble filling jobs at current wages, or could be evidence of a skills mismatch in the labor market. wsj / R
Fed – Agreement on September Rate Increase Eludes
Investors see the hesitance. In futures markets, where traders make bets on the outlook for Fed policy, the market places a 74% probability on the Fed leaving its benchmark rate unchanged this month, according to the Chicago Mercantile Exchange. Futures market prices show traders see the probability of a move by December at greater than 60%. WSJ
Fed – Era of low interest rates fails to generate expected growth
Kenneth Rogoff, a professor at Harvard, has closely studied the disappointing aftermaths of financial crises. He says the Fed would in a normal cyclical upswing have lifted rates at least six months ago given the firm labour market signals it is getting. “However, it is not a typical business cycle,” he says, arguing the Fed cannot be confident in models showing that inflation is just round the corner. ...
What complicates the picture is that even as many Americans complain about a sluggish recovery, hotspots are emerging. One example is commercial real estate where values have long exceeded their pre-crisis peaks in a sector — property — which has been the locus of financial stability troubles in the past. FT
Fed – EMs say lift rates and end uncertainty
Julio Velarde, Peru’s central bank governor, said most EMs wanted the Fed to raise rates “as soon as possible”....
Agustín Carstens, Mexico’s top central banker... told Reuters at a meeting of monetary officials in Jackson Hole last month that a Fed rate rise indicating a stronger US economy would be “for us, very good news”..
Raghuram Rajan, governor of India’s central bank, told the Wall Street Journal: “It’s preferable to have a move early on and an advertised, slow move up rather than the Fed be forced to tighten more significantly down the line.” FT
Fed – Switzerland prays for US rate rise
Fed – Leaves Margin for Error
This approach reflects a system of decision-making dubbed “risk management,” in which the Fed acknowledges it will sometimes make mistakes and seeks to avoid the most damaging missteps... Indeed, since 2008 the Fed has persistently erred on the side of keeping monetary policy loose to stimulate the economy. WSJ
Fed – Economic indicators mean hard choices
Officials at the central bank face a fiendishly complex picture. Hotspots are emerging across the US economy, in areas ranging from car sales, which are running at their fastest pace in a decade, to commercial real estate prices, which have surpassed their bubble-era peaks. The unemployment rate has fallen below levels seen at the beginning of both of the Fed’s last two rate-increasing cycles...
In spite of such momentum a Fed survey of its reserve banks released last week suggests there is scarcely a flicker of inflation across their regions, while figures on Friday confirmed wages remain sluggish. FT
Joseph LaVorgna, Deutsche Bank AG’s chief U.S. economist... pushed out his forecast for the Fed’s first interest-rate increase in nearly a decade until October. That’s a change from two weeks ago... "I’m totally convinced they don’t need to move" this month, he said in a phone interview. "October seems to work really well."... "The financial markets are not discounting a Fed hike this month, and history is clear that policymakers are loathe to disappoint financial markets." B
Fed – Turning point looms for debt binge
Fed – Asia: What history teaches us
Higher rates, however, do not inevitably mean falling asset prices. Emerging stock markets in Asia actually rose by 50 percent from 2004 to 2006 as the Fed increased its policy rate by 400 basis points, from 1.25 percent to 5.25 percent. ... Indonesia and India’s stock markets rose 80 percent and 120 percent respectively, while South Korea’s won and the Singapore dollar gained 22 percent and 9 percent. B
BOE – Will the UK follow if US raises interest rates?
Mobiles – Apple Unveils iPhones, iPads, Apple TV
The biggest new feature is Apple’s “3-D Touch,” a new way of manipulating the phone depending on how hard you press.... The feature, while interesting, isn’t the type of flashy advance likely to draw customers into Apple stores to get a new iPhone, said Brian Blau, research director at Gartner. WSJ
To reinvigorate US sales, Apple also unveiled a new financing scheme that will allow its most loyal customers to pay $32 a month for annual iPhone upgrades and extra insurance. The move follows a wider shift away from subsidies by US mobile carriers but analysts said it could provide Apple with a significant new recurring revenue stream. FT / NYT
Apple TV demonstrations showed tricks to make viewing easier: digital assistant Siri, which is behind the voice control, can rewind a video for 15 seconds and turn on subtitles, when a viewer asks something like "What did she say"? R
Mobiles – Apple TV Focuses on Games
Apple TV overcomes some of the frustrations we have with traditional TVs and cable boxes. Live channels force you to tune into shows according to their schedule (or at least remember to record them). In a Web world where you expect instant access to the good stuff, this old model makes less and less sense. Apple TV, following in the footsteps of Roku and Google’s Chromecast, replaces channels with apps.
But Apple TV isn’t just a big screen of apps. Press the Siri button and say “show me some comedy,” and list of comedy movies displays on the screen. (Unlike on the iPhone, Siri doesn’t speak on Apple TV.) WSJ
Mobiles – Apple Watch Gets First Major Updates
Developers will also be able to integrate their apps into watch faces as complications, or the little widgets that accompany the time. B
Mobiles – Apple’s Ad-Blocking Feature Is Sending Publishers Scrambling
Mobiles – iPhone: The Biggest Change Is How You’ll Pay for It
While carriers have changed the structure of how they sell the iPhone, the total cost of the device, typically $650 for the base model of the latest version, hasn’t changed. To convince customers to upgrade or lure them from rivals, carriers keep upfront phone prices relatively low. WSJ
Apple will offer a monthly fee of $32.41 over 24 months for its cheapest iPhone model under the new program announced Wednesday at the latest iPhone launch. The deal allows customers to get a new device each year, as well as select their carrier with each upgrade... If customers go to Apple to finance their phones and choose a carrier, for example, Apple will be able to steer that customer’s decision WSJ
Mobiles – Apple’s fiercest rival: itself
Although the first quarter of fiscal 2016 corresponds with the holiday shopping season, Apple may see its slowest year-over-year rise in iPhone unit sales ever. And if the analyst consensus estimate compiled by FactSet holds true, iPhone sales will enter terra incognita the following quarter by dropping for the first time compared with a year earlier. WSJ
Mobiles – Rivals Try to Reinvent Xiaomi Business Model
Mobiles – Samsung, Huawei fight it out in Europe
|TRADE & TRANSPORTATION||Top|
Pipeline – Boom Ebbs
In some pockets of the country, more are still needed: New England, for example, doesn’t have enough access to nearby natural-gas fields to run its power plants. And in the crowded Permian Basin area of Texas, some companies continue to build. WSJ
Coffee – Rallies on fears over Brazilian crop
Coffee – Disconnect Is Brewing
Traders worry that the cocoa market will follow suit as consumers increasingly demand highly specialized beans in their chocolate bars. WSJ
|ENERGY & ENVIRONMENT||Top|
Carbon – Capture: Miracle machine or white elephant?
Leaders of the world’s largest fossil fuel companies speak regularly of what Ben van Beurden, chief executive of Royal Dutch Shell, calls the “real game-changer” of power plants with CCS.... But to date there is just one carbon capture system in commercial operation at a power station, the Boundary Dam coal plant that Canada’s SaskPower utility opened last year. Two others in the US are supposed to start next year, including one in Mississippi that was scheduled to begin operating in 2013 and has a $6.2bn price tag. FT
Carbon – CA Climate-Change Push Heats Up
The bill easily passed the Senate, but it is faltering in the Assembly because of opposition by moderate Democrats, many representing economically suffering districts in central California... The amended bill still aims to curb carbon emissions from two other sectors of the energy industry. Using 2016 levels as the starting point, the legislation would require the state’s utilities to get half their power from renewable sources and all buildings in the state to increase their energy efficiency by 50%. WSJ / NYT / NYT
Carbon – The race to find transformative strategies is on
“If we don’t do something transformative on GHGs, others will find ways to stop us,” says Eric Newell, an elder statesman in the oil patch who recently chaired a federally appointed panel on environmental challenges in the oil sands sector.... “You can mitigate [emissions] but it’s still not enough – you actually need to go to the transformative technologies,” he said in an interview. “It’s not an option as to whether we improve, it’s a requirement.” G&M
Health plans use the group’s reports, and this new one could increase pressure on the makers of the cholesterol drugs to offer bigger discounts. Express Scripts, the country’s largest pharmaceutical benefit manager, has said it plans to use the report’s findings in its negotiations with the drug companies. NYT
Pharma – Indian drugs: not what the doctor ordered
The 2,229 Paintings At MoMA
On GitHub, an online data and code hosting service, sits the entire MoMA collection... It’s basically the data printed on the placards posted next to each painting. But, in MoMA’s case, it’s assembled in one place, comprehensive, easy to use, and recent...
As you can see from the thick blanket of points at the frontier of the scatter plot, much of its yearly acquisitions are of recent pieces — the art of our time. Still, the average acquired painting was painted about 30 years before it joined MoMA’s collection.
Warren Hatch, PhD, CFA
Portfolio Management and Global Investment Strategy
McAlinden Research Partners
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