Recent US consumer activity caught the Street flat footed. This bunch note that this spending was on the back of savings (as income growth was modest) which is why they missed it. After being thoroughly beaten about the head and shoulders, these observers now claim that since savings won’t hold, neither will spending and no way we will continue to see improved consumption into year end - hoping they eventually will be right!
Consumer activity will continue to improve into year end, again blowing through estimates.
Next, although burning on at best 6 of 8, job activity will continue to improve, modestly perhaps, but improve. A good part of the reason for this is that employers are beginning to be cheered by developments in Washington.
Therefore, our anchor set weeks ago will continue to hold. (Our positive view however is not linked to Friday’s buoyant Michigan sentiment read. We know from years of personal observation that the correlation between survey results and spending just ahead is zilch.)
This week we have the ISM survey for manufacturing and services. The risk is that both will flatten estimates. And we have Oct Payroll on Friday. We cannot assign a risk to the headline but private sector jobs will exceed estimates.
Key to our purpose then is the provision that banks are to establish a core-capital ratio of 9%. But why will so many want to raise new equity and dilute their shareholders’ stakes, when their share prices are only about ½ book anyway? They won’t.. Suspecting the same, officials warn banks not to cut loans to get to 9% the back-handed way (which is exactly what they will do) but instead “seek national government support” if needed. Right. Traders can then expect relative vigor, US or Canada to Germany or France and are to set trades accordingly.
Finally, the Mid East remains a potent wild card; if not a Saudi / Iranian conflict, certainly the potential for an Israeli strike on Iran, the rattlesnake nearby. As reported in the Washington Times, military analyst Amir Oren of the Ha-aretz newspaper noted that, “...until recently, Mr. Netanyahu had faced opposition to attacking Iran from Army Chief of Staff Gen. Gabi Ashkenazi and Mossad intelligence chief Meir Dagan. Both retired earlier this year and have been replaced by men believed to hold a different view on Iran.”
Such a strike would translate in the US to negative growth for at least a quarter as it would place WTI through 130 and keep it there for some time.
Robert Craven
No comments:
Post a Comment