Where is the economy headed?After the central banks in Europe announced they would support failing bank Dexia and Federal Reserve Chairman Ben Bernanke said the Fed is ready to do more to support the faltering U.S. economy, the equity markets rallied.
After the central banks in Europe announced they would support failing bank Dexia and Federal Reserve Chairman Ben Bernanke said the Fed is ready to do more to support the faltering U.S. economy, the equity markets rallied.
The dollar fell and the euro rallied. Traders and fund managers have been liquidating long positions in most commodities markets in fear of a global slowdown because of poor economic conditions in Europe, the potential of a double-dip recession in the U.S. and a slower rate of growth in China. However, in recent market activity, many commodities markets took a moment to catch their breath.
So, is the economy in trouble, and will the European Union survive? First, I must preface this commentary by saying I am not an economist, but merely expressing thoughts and rhetoric that I have been listening to and believe to be reliable information.
For some months, global economic indicators have been on a slide. This has caused many economists to predict a double-dip recession for the global economy. I remember when I was new in the futures industry. One of the indications of the U.S. heading into recession was car sales. When car sales slumped, it took about eight months or so and the U.S. would start to slow.
In September, the Detroit car manufacturers posted sizable sales gains. General Motors saw its sales increase 20 percent. Ford’s sales increased 9 percent, while Chrysler sales were up 27 percent. Asian and European members saw Nissan and Volkswagen post sales increases of 25 and 36 percent, respectively. With many predicting a return to recession, these sales increases would indicate that, perhaps, cheap interest rates have people starting to spend for necessities. These sales numbers represent the strongest sales pace since April, and also an increase of nearly 10 percent from this time last year. Some of these sales could be addressing pent-up demand by Japan after its earthquake and tsunami disaster in March.
One thought from the Institute for Supply Management is U.S. factory activity expanded at a faster pace than anticipated in September. I am writing this with excerpts from Traders Planet. Furthermore, employment numbers have not yet been released at time of writing, but, as Traders Planet indicated, the employment numbers were moving in the right direction recently, or to the upside.
On a radio commentary recently, I heard the analysts guessing sales for Christmas would be up 2.8 percent or more this year. China recently reported its Producer Manufacturing Index showed marginal growth and steady improvement. Crude oil and gasoline prices have declined from the yearly highs, and, in time, this will translate to cheaper energy costs for manufacturing as well as the domestic consumer.
What will be really helpful is U.S. quarterly data, which comes out at the end of the year. Hopefully, the news is positive.
We need to look at another situation that has been catching the attention of the world’s financial markets. It soon will be two years that the topic and concerns about the PIIGS have been with us. Concerns about the European Union and how it tiptoes through the financial mess with Portugal, Ireland, Italy, Greece and Spain are realistic and deserve attention.
The euro has not been around that long, and for commodity traders, it seems that if the dollar is going down, the euro is going up, and vice-versa. Will that continue? Not so sure.