As Beijing readies for a celebration commemorating the Allied victory in World War II, China’s economy remains on the forefront of investors’ minds as efforts to stem the stock market rout continue to fail and growth indicators remain weak. August purchasing managers’ index levels released today by the official China Federation of Logistics and Purchasing registered at the lowest level in three years at 49.7. Meanwhile, after a 12 percent decline for the benchmark Shanghai composite index this past month, Chinese stocks began September on shaky ground, closing down 1.2 percent for the session. As has been the case in recent weeks, many analysts linked the heavy burst of buying in a window-dressing exercise with government-controlled investment vehicles.
Unemployment dips in Europe. According to Eurostat data released today, unemployment in the euro zone fell by a greater-than-forecast margin in July. At 10.9 the aggregate headline unemployment rate is now at the lowest seasonally adjusted level since February 2012. Despite improving fundamentals in the common currency zone, European Central Bank president Mario Draghi has consistently cited high unemployment as cause for greater structural reforms to complement the bank’s accommodative policies.
Australian central bank leaves rates unchanged. The Reserve Bank of Australia left rates unchanged at record lows today, with governor Glenn Stevens commenting positively on the Australian dollar in the statement issued by the bank. With the Australian dollar at the lowest level versus the U.S. dollar since 2009, the policy announcement marked the first time in months that Stevens did not explicitly state that his country’s currency is overvalued.
IMF’s Lagarde warns on growth. International Monetary Fund Managing Director Christine Lagarde stated in a speech today in Indonesian capital Jakarta that global growth is likely to weaken further than the fund had previously estimated and warned of risks to developing economies. According to Lagarde, while China’s slowdown has created near-term challenges, it is part of a long-term transition and policymakers there will be able to smooth the process.
Oil markets stage a comeback. Front-month WTI crude oil futures contracts spiked 7 percent yesterday to reach $49 intraday. The rally, which completed a three-session increase of more than 25 percent, followed an announcement by OPEC that it is willing to work with other producers to stabilize markets at a higher price range.
Chinese authorities question hedge fund manager. Multiple media outlets have reported that Li Yifei, chair of the Chinese unit of London–headquartered hedge fund firm Man Group, has been taken into custody by Chinese authorities investigating market volatility. Li has not been charged with any wrongdoing. Regulators in the nation have recently begun investigating a number of brokers and asset managers in the wake of the recent sharp sell-off in local stock markets.
Overstock.com to enter financial services. Internet retailer Overstock.com last week acquired SpeedRoute Technologies, a high-speed brokerage platform, in order to launch a new service matching equity short sellers with hard-to-borrow shares. Industry observers note that irony that Overstock founder and chief executive Patrick Byrne in the past has waged a public campaign against hedge funds shorting his own company’s stock, including character attacks on journalists critical of the firm’s business model. In the press release announcing the acquisition, Byrne quoted Karl Marx.
Portfolio Perspective: Interpreting the Fed’s Signals
We’ve been out of sync with the Federal Reserve for a dozen years now. That’s okay. The stock market has been out of sync with the Fed for five of those years and that in turn is because we’ve been in sync with the credit market, which has dictated to the stock market over that time. It looks like there are going to be shifts on each of those fronts. The Fed appears to have abandoned its data-dependent policy and is now going to rely on their forecasts, even though their forecasting record is nothing to write home about. And public pensions will likely bring in even more money from their contributing cities and states, leading to a bigger credit boom and more financial engineering designed to lift share prices.
Brian Reynolds is chief market strategist for New Albion Partners, an institutional agency equity and equity derivatives brokerage firm, in New York.
