“The fight is won or lost far away from witnesses – behind the lines, in the gym, and out there on the road, long before I dance under those lights.” — Muhammad Ali

1. Chinese PMI services and manufacturing shows growth — China’s non-manufacturing PMI slipped to 53.9 in August from 54.1 in July but stayed firmly in expansion territory. The reading shows China’s manufacturing industry is growing as well.
2. Eurozone business activity grows at fastest pace in two years — the eurozone composite PMI rose to 51.5 in August from 50.5 in July, indicating the fastest rate of expansion since 2011. The services index climbed to 50.7 from 49.8, representing the first increase in activity for a year and a half.
3. Manufacturing Expanded for the third straight month — US factory growth expanded to a 2-year high of 55.7 in Aug according to the latest ISM number. The data suggests that the economy is strengthening more than anticipated.
4. U.S. Car Sales Soar to Pre-Slump Level — WSJ, U.S. light vehicle sales hit 1.5M in August to record the best month for the industry since May 2007. At 16.09M, the annual U.S. automobile selling rate topped the estimates of most analysts and shows the sector is set up well with new model introductions arriving this fall amid tight inventory.
5. Fed ‘s Beige Book – Summary of Commentary on Current Economic Conditions by Federal Reserve District — FOMC, reports from the twelve Federal Reserve Districts suggest that national economic activity continued to expand at a modest to moderate pace during the reporting period of early July through late August. Robust demand for autos and housing-related goods fueled an increase in consumer spending across most districts, residential real-estate activity “increased modestly,” credit quality showed improvement, and lending activity was characterized as “mixed.”
6. World Powers Remain Divided Over Syrian Action at G-20 — WSJ, World leaders gathering for a summit remained divided over whether to back punitive military strikes on the Syrian regime, reflecting the domestic political concerns many of their leaders are facing. Italy is reportedly concerned about sparking a wider conflict, Germany wants to take the matter to the ICC and Russia is reluctant to take a stance against Assad.

The week ahead — Economic data from Econoday.com:

“The essence of portfolio management is the management of risks, not the management of returns.” — Benjamin Graham

1. Japan’s debt-funding costs to hit $257 bln next year — Reuters, Japan’s Ministry of Finance reportedly wants to allocate a record ¥25.3T ($257B) to service the country’s mammoth debt of ¥1,000T ($10T) – which is double the size of its economy – for the next fiscal year. The expected provision is 13.7% higher than for this FY.
2. Obama seeks congress approval on a military strike against Syria — Bloomberg, Oil reached a two-year high and energy shares led gains in U.S. stocks, while emerging-market currencies weakened, amid growing speculation there will be an American-led military strike against Syria. The UK voted against military intervention. Many Asian and European share indices sold-off, with some emerging-market asset classes continuing to suffer.
3. Indian currency continues its free-fall — the Indian rupee’s collapse shows no sign of waning, the rupee hitting yet another record low of 68.71 to the dollar as the tension in the Middle East adds to the Fed’s prospective tapering and domestic economic problems as reasons to sell.
4. Emerging Markets Currency Movement — MarketWatch, below is a chart which explains the recent Emerging-Market slump. Late last week, the Reserve Bank of India said it would sell dollars to the country’s major oil companies. With oil India’s biggest import item, the action is aimed at removing $400-500M worth of demand a day for the dollar from the spot market and reducing downward pressure on the rupee.

5. German jobless rate holds steady — Germany’s unemployment rate was unchanged at 6.8% in August, although the number of people without a job unexpectedly rose by 7,000 vs a fall of 7,000 in July and consensus for a drop of 5,000.

The week ahead — Economic data from Econoday.com:

“Once we realize that imperfect understanding is the human condition there is no shame in being wrong, only in failing to correct our mistakes.” — George Soros

1. J.P. Morgan Faces New Probe on Energy Trades — the Department of Justice is reportedly investigating JPMorgan (JPM) over whether it manipulated U.S. energy markets. The speculation comes less than a month after the bank agreed to pay $410M to the Federal Energy Regulatory Commission to settle charges related to such manipulation. The latest probe adds to inquiries over the London Whale, metal warehouses and mortgage bonds problems.
2. Moody’s lifts outlook on U.S. states — WSJ, the ratings agency changed its collective outlook on U.S. states to stable from negative, where it has been for the past five years. Credit quality among the 50 states is generally high, Moody’s said, with 30 states rated at triple-A or Aa1, the two highest ratings. Moody stated the slowly recovering economy has helped states’ revenue and reserves.
3. China manufacturing sees surprise rebound — MarketWatch, the “flash” reading of the China manufacturing PMI, compiled by HSBC and Markit, rebounded to a four-month high of 50.1 from a final reading of 47.7 in July, an 11-month low.
A reading below 50 indicates contraction in sector activity, while one above 50 shows growth.
4. Eurozone business growth hits two-year highs — Eurozone flash manufacturing PMI has increased to a 26-month high of 51.3 in August from 50.3 in July and exceeded consensus of 50.8. Services also showed expansion, as did the composite figure.
5. Emerging markets selloff intensifies after Fed — Reuters, after the FOMC minutes released late last week, which caused the recent spike in U.S. debt yields has caused borrowing costs to increase globally, which, along with the rising dollar, has not been healthy for emerging markets with large current account deficits, such as India. The country’s rupee, along with Turkey’s lira, hit new record lows, while the currencies of Indonesia, Malaysia and Thailand dropped to multi-year troughs.
6. Deficit Budget Deal Talk Break-Down — NYTimes, budget talks between the White House and Senate Republicans have gone nowhere since Congress began its summer recess, increasing chances of a fiscal stalemate that could lead to a government shutdown in October or the threat of a government default later in the fall.
7. AAII Bullish Sentiment — from BIG, according to the weekly survey from American Association of Individual Investors (AAII), bullish sentiment dropping to its lowest levels since early 2012.

The week ahead — Economic data from Econoday.com:

“Markets are constantly in a state of uncertainty and flux, and money is made by discounting the obvious and betting on the unexpected.” — Soros

1. Japan’s Q2 GDP growth slows and misses estimates — Japan’s economic expansion decelerated in Q2 to an annualized 2.6% from 3.8% in Q1 and missed consensus of 3.6%. Growth was dragged down by an unexpected drop in capex, although private consumption topped forecasts.
2. U.S. Regulator & CFTC Subpoenas Banks Over Long Warehouse Queues— Reuters, U.S. derivatives regulator subpoenaed Goldman Sachs Group Inc. (GS) and JPMorgan Chase & Co. (JPM) for documents relating to their warehouses for aluminum and other metals. The speculation comes amid allegations that warehouse companies artificially boosted the price of metals, particularly aluminum. Other companies that are being probed include Glencore (GLNCY.PK) and Noble Group (NOBGF.PK).
3. Eurozone exits recession as Germany, France, Portugal grow — Eurozone GDP expanded 0.3% on quarter in Q2, signaling an end to the region’s recession. The growth represented a recovery from contraction of 0.3% in Q1 and topped consensus of +0.2%. Germany expanded again in Q2 after GDP was flat in Q1, boosted by domestic demand, fixed capital formation and a trade surplus. France exited recession, as did – most surprisingly – Portugal, whose economy grew 1.1%.
4. Asset Class Performance YTD — from BIG, below is an updated look at the performance of various asset classes (ETFs) during the month of August.

ETFs Aug 14 2013

The week ahead — Economic data from Econoday.com:

1. China seeks recall of two Abbott infant formula products — MarketWatch, China has asked Abbott Laboratories (ABT) to recall some infant formula products after the New Zealand embassy said that two batches produced by the company could have been tainted by bacteria that can cause botulism.
2. Chinese trade data beats estimates — China’s trade data for July topped expectations and provided evidence that the economy might be stabilizing after over two years of slowing growth. Imports surged 10.9% on year vs expectations of +2.1%, while exports rose 5.1% vs +3%.
3. BOJ leaves monetary policy unchanged — the Bank of Japan (BOJ) has maintained its pledge to expand the monetary base by ¥60T to ¥70T a year. The BOJ also kept its assessment of the economy unchanged, saying that it’s “starting to recover moderately,” and the bank noted that “inflation expectations appear to be rising.”
4. Japan’s Debt Exceeds 1 Quadrillion Yen — Bloomberg, the country’s outstanding public debt including borrowings reached a record 1,008.6 trillion yen ($10.46 trillion) as of June 30, up 1.7 percent from three months earlier, the finance ministry said in Tokyo. Larger than the economies of Germany, France and the U.K. combined, the amount includes 830.5 trillion yen in government bonds. The world’s heaviest debt burden will weigh on Abe when he decides next month whether to implement a two-step plan to double the tax on consumers in a nation with ballooning welfare costs.
5. AAII Bullish Sentiment — from BIG, according to the weekly survey from American Association of Individual Investors (AAII), bullish sentiment increased from 35.6% up to 39.5%. At this level, even though the S&P 500 is within 1% of an all-time high, bullish sentiment is only one percentage point above its historical average for the current bull market (38.3%).

The week ahead — Economic data from Econoday.com:

“After all these years, I know one thing for certain: the PERFECT trading system does not exist and never will” — Jake Berstein

1. Treasury Secretary to avoid Detroit bailout — ABCNews, Treasury Secretary Jacob Lew appears to have dismissed union calls to provide bankrupt Detroit with financial assistance. “Detroit’s economic problems have been a long time in developing,” he said. “I think Detroit’s going to have to work with its creditors on this.” In the Senate, Texas’ John Cornyn has filed an amendment that would ban the federal government from bailing out financially troubled cities, while Lindsey Graham is also opposed to such rescues.
2. Japanese industrial output drops in June — Japanese industrial production unexpectedly dipped in June by 3.3% on month, trailing expectations for a 1.7% drop. A decline in the production of transport equipment, including autos, led the fall, followed by electronics and machinery.
3. China’s official Purchasing Managers’ Index (PMI) for July 2013 shows gain — MarketWatch, China’s official(PMI), registered a surprise gain for July, rising to 50.3 from 50.1 the previous month. However, a separate PMI published by HSBC and Markit said activity was contracting, with the index sinking to an 11-month low of 47.7, down from June’s final reading of 48.2. Any reading above 50 indicates activity is expanding, and the result beat expectations for a drop to 49.8, according to estimates reported by Dow Jones Newswires.
4. Fed downgrades economic view — FederalReserve, The FOMC slightly downgraded its view of the U.S. economy. The Fed stated the US economy expanding at a “modest” pace vs. “moderate” at the last meeting. However, the Fed didn’t provide any hint about any alteration to the future course of QE.
5. Eurozone economy stabilizes as German recovery accelerates and downturns ease in France, Italy and Spain — Markiteconomics, Eurozone business activity expanded for the first time in 18 months in July as composite PMI increased to 50.5 from 48.7 in June, while services PMI rose to 49.8 from 48.3. Germany’s recovery gained momentum and the downturns in major economies such as France, Italy and Spain eased further.
6. Bullish Sentiment Drops For 3rd Straight Week — courtesy of BIG, as market makes new highs, individual investors actually turned moderately more cautious in the latest week According to the weekly survey from the American Association of Individual Investors (AAII).

The week ahead — Economic data from Econoday.com:

“Never bet that things that aren’t happening will start happening. Bet instead that things that are already happening will keep happening” — Jesse Livermore

1. Shinzo Abe’s LDP wins big in election — the Liberal Democratic Party (LDP) of Prime Minister Shinzo Abe won a big majority in an election for the country’s upper house, giving the LDP control of both chambers of parliament. The victory in the vote for parliament’s upper house gives Abe a stronger mandate for his prescription for reviving the stagnant economy.
2. U.S. Weighs Inquiry Into Big Banks’ Storage of Commodities — NYTimes, the Commodity Futures Trading Commission has taken the first step in an examination of warehouse operations that are controlled by Goldman Sachs (GS), Glencore Xstrata, the Noble Group and major banks such as JPMorgan (JPM) and Morgan Stanley (MS) used to store vast amounts of aluminum. Legislators are expected to explore whether banks should be allowed to continue to store metal, transport oil and operate mines, and possibly how prices have been affected by the companies’ activities.
3. Eurozone stabilises as PMI hits one-and-a-half year high — Manufacturers reported the largest monthly increase in output since June 2011, registering an expansion for the first time since February of last year. “The best (composite) PMI reading for 1 1/2 years provides encouraging evidence to suggest that the euro area could – at long last – pull out of its recession in the third quarter,” says Markit.
4. Japanese export growth slows — Japanese exports increased for a fourth consecutive month in June, rising 7.4% on year, although that marked a slowdown from +10.1% in May, while the reading also missed consensus of +10.3%. Imports grew 11.8% and the trade deficit widened to ¥180.8B ($1.81B) from ¥996.4B. Exports to the U.S., China and even the EU increased.
5. Earnings Beat Rate for 2Q 2013 — courtesy of BIG, the earnings beat rate for the second quarter of 2013 has actually increased to 65.2%. Below is a look at the earnings beat rate by sector.

6. China boosts railway budget to keep growth on track — Bloomberg, China increased its 2010-2015 budget for railway spending by 500B yuan (81.48B) to 3.3T yuan as the government looks to accelerate construction as part of a bid to prevent GDP growth from slowing too much. The State Council also approved tax breaks for small companies and reduced fees for exporters to boost growth.

The week ahead — Economic data from Econoday.com:

“Know What Kind of Investor You Are” — Benjamin Graham

1. Chinese Q2 GDP grows 7.5% — China’s economy matched forecasts and expanded 7.5% on year in Q2, although that was down from 7.7% in Q1.
2. Restaurants, bars act to avoid cost of Obamacare — the WSJ has found anecdotal evidence that restaurants and bars have been converting much of their staff to part-time from full time so that they don’t have to provide health insurance as mandated by the Affordable Care Act.
3. Mexico unveils $316B infrastructure plan — Mexican President Enrique Pena Nieto has announced a “transformational” plan for 4T peso ($316B) of government and private infrastructure investments from 2013 to 2018, including in roads, railways, telecom, ports and energy. The spending could add up to 5% of GDP. Companies that could benefit include cement maker Cemex (CX) and construction firm Empresas (ICA).
4. U.S. Shale Boom Threatens Australian Gas Projects — WSJ, the surge in natural gas output in North America has reduced the appeal of projects in Australia, where major international companies such as Chevron (CVX), Exxon Mobil (XOM) and Shell (RDS.A) are investing over $160B. With U.S. prices low and the country beginning to increase exports, another $100B of spending in Australia is at risk, especially as the high Aussie dollar and labor shortages have helped cause costs to balloon.
5. Greece approves scheme to fire thousands of public workers — Reuters, Greece’s parliament has narrowly approved the latest set of Troika-mandated austerity plans, paving the way for the country to receive the next tranche of its bailout. The bill includes deeply divisive plans for a transfer and layoff scheme for 25,000 public workers – mainly teachers and municipal police – that had triggered a week of almost daily marches, rallies and strikes in protest.
6. U.K. offers tax breaks to boost shale-gas industry — the U.K. government has introduced a tax break for shale-gas producers, to attract investment into what it hopes will be a major new industry for Britain. Taxes on fracking profits will be lowered to 30%, compared with a top rate of 62% on new North Sea oil operations and up to 81% for older offshore oilfields, according to media reports.
7. Detroit files for record bankruptcy — Detroit filed the largest municipal bankruptcy in U.S. history late last week, setting the stage for a costly court battle with creditors and opening a new chapter in the long struggle to revive the city that was the cradle of the American auto industry. Detroit’s creditors are expected to face huge losses, and the future of retiree pension and health benefits for thousands of city workers hangs in the balance.