A quick review of the issues and events driving the markets this past week... and what's on tap for the week ahead.

Weekly Market Snapshot

September 7, 2015

"What has been demonstrated...is how much Asia is at the core of the global economy"

— The IMF's Christine Lagarde on August's market turmoil triggered by the downdraft in China's stock markets (Reuters, September 1 2015)

The week in review...

AMERICAS

US: Timing is everything The Fed's regular anecdotal review of business conditions by region – the so-called "beige book" – is one of the internal documents the FOMC will use during its September 17-18 meeting, when a rate hike is very much on the table. But the report is based on information collected before August 24, prior to some of the most turbulent trading in years in U.S. financial markets.

US: Get your motor running August saw the fastest pace of vehicle sales in ten years – 17.8 million – the fourth month in a row of sales above the 17-million pace. Particular good news for manufacturers: sales of highly-profitable pickups and SUVs were especially strong; conversely, car sales were lackluster for some makers. Incentives, some based on low-interest loans, certainly helped.

US: Labor productivity and jobs Another focus of economic anxiety improved, with nonfarm productivity for 2Q up 3.3% vs 2Q, handily beating consensus expectations. But the figure was a bit of a mixed blessing, with part of the increase due to a larger-then-expected drop in unit labor costs – down -1.4%. Year-on-year, (Y/y), productivity rose a more modest 0.7% and unit labor costs rose 1.7%. Friday's August jobs report, with its slightly improved 5.1% unemployment rate, 2.2% Y/y improvement in average hourly earnings and upward revisions for July, contained little to discourage the Fed from making a move on September 18.

Brazil: The music stops The economy shrank -1.9% in 2Q, following 1Q's -0.7% drop – meaning that Brazil has officially entered recession. Falling commodity prices have hurt – and Brazil's main customer for its own commodities is China, facing its own set of challenges. President Rousseff is under increasing political pressure as her economic "dream team" hasn't lived up to expectations, and a widespread corruption scandal involving state-owned Petrobras hasn't made the government's work any easier.

ASIA

Macau: Slide effects The former Portuguese colony, where casino gambling is legal, is dependent on gaming revenue for 80% of its income. The government just reported a -26.4% drop in GDP year on year for 2Q – little surprise, given the -37% fall in gaming revenue for the same period. Casino developers, both Chinese and foreign, had been counting on steadily growing business from increasingly wealthy clients from China. But business started to turn down in 3Q2014 and has worsened sharply since – in part due to increased scrutiny from Beijing.

EUROPEAN UNION

ECB stimulus: Stepping up the pace? At Thursday's press conference, Mario Draghi expressed frustration at the sluggish pace of the EU's recovery by downgrading forecasts for both economic growth and inflation. Blaming reduced exports to China and other EM countries, he stressed the bank's "willingness and ability to act if warranted," though no specific plan was floated. The ECB's bond-buying stimulus program has faced challenges due to a lack of eligible bonds.

Signs of the times:

Euro-Area Inflation Stays at 0.2 pct as ECB Sees Downside Risks – Bloomberg

Merkel Ally Spahn Sees IMF Aiding Greece, Lauds Tsipras – Bloomberg

Japan August PMI survey shows services expand at fastest pace in almost two years – Reuters

American Factories Expand at Slowest Pace Since May 2013 – Bloomberg

Sources: Bloomberg, Wall Street Journal, Financial Times, New York Times, Xinhua, China Daily, Market News International, Deutsche Welle, Government of Macao Statistics and Census Service.


Definitions:

The International Monetary Fund (IMF) is an international organization of various member countries, established to promote international monetary cooperation, exchange stability, and orderly exchange arrangements.

The Beige Book is a commonly used name for the Federal Reserve report, "Summary of Commentary on Current Economic Conditions by Federal Reserve District". It is published eight times each year, just before the Federal Open Market Committee (FOMC) meeting on interest rates, and is used to inform the members on changes in the economy since the last meeting.

The Federal Open Market Committee (FOMC) is a policy-making body of the Federal Reserve System (the Fed), responsible for the formulation of a policy designed to promote economic growth, full employment, stable prices, and a sustainable pattern of international trade and payments.

Gross Domestic Product (GDP) is an economic statistic which measures the market value of all final goods and services produced within a country in a given period of time.

The European Central Bank (ECB) is responsible for the monetary system of the European Union (EU) and the euro currency.

Purchasing Managers Indexes (PMI) measure the manufacturing and services sectors in an economy, based on survey data collected from a representative panel of manufacturing and services firms.


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FN1513825

Previous Editions

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Poll

Will China's official growth rate fall to 6 percent by the end of 2015?








Poll

Will China's official growth rate fall to 6 percent by the end of 2015?

Yes: Economic reform measures will take their toll on growth
(53%)
Yes: Demographics and urban labor shortage will constrain demand
(18%)
No: New monetary and fiscal stimulus will restore rapid growth
(16%)
No: Recovery in the US, Europe and Japan will more than make up for slowing domestic demand
(13%)



Previous month Poll

When will the Fed raise the Fed Funds target rate?

June
(2%)
September
(33%)
November
(24%)
Not until 2016
(41%)