The market is hesitating. Will it rise, or has it already shot its bolt? Are there signs of a recovery in the American economy, or will the impact of the strong car sales turn out to be nothing more than a temporary phenomenon? What are the implications for the American short-term interest rate and the bond markets? Not to mention profitability and unemployment?
All these questions cry out for answers and it looks as if the market will only be ready to choose a direction, when it gets a hint of what lies behind the current veil of uncertainty. At moments like these, normally unimportant business economic reports and macro-economic events can make a clear impression on market sentiment, and can even influence the market for days on occasion.
Beige book Fed
A good example is the publication of Beige book on Wednesday. It is traditionally published two weeks prior to the Fed's policy-making Federal Open Market Committee Meeting (FOMC) and brims over with anecdotal material, which - it is believed - plays a decisive role in some instances in deciding changes to monetary policy.
The market probably would not have paid much attention, if this report had been published 10 days ago. At that time, it wasn't so much a question of if, but when and by how much the interest rate in America would be lowered (see graphic below).
Verwachting op = Expectation on
Leading indicators
Clearly, a lot can change in 10 days. Currently there is some hope the American economy has put the worst behind it. The stock markets are already anticipating the coming recovery. The interest rate and bond markets - after the strong car sales figures and a slight improvement in the labour market reflected in the initial jobless claims - are now seriously reckoning with the possibility that we have hit bottom. The recovery may kick in the first quarter rather that the second half of next year.
Based on the Federal Funds Futures, it is estimated that there is a 40% chance there will be one last 25 basis point interest rate cut. Meanwhile, the markets have also reckoned that the Federal Funds Rate will be raised again by 50 basis points in July. The Beige book, whether sombre or optimistic, can really stir things up in a climate like this.
The various leading indicators, such as the consumer and producer confidence reports, should be the first to reflect whether the worst is over. The national consumer confidence indicator is published on Tuesday. Despite the fact that I have often been critical of the indicator's powers of prediction, it will give a good indication of the situation in the labour market. Subsequently, the Chicago Purchasing Managers Index will be published on Friday; the first of three leading producer confidence indicators in the U.S.
GDP-report US
I would also like to mention the American Gross Domestic Product (GDP) report, which is also released on
Friday. Normally the revision of the first publication (the
flash estimate, issued last month) leading to the second publication (
the preliminary release) is predictable to a certain extent. The difference between the two reports is that the first is based on estimates of September trade, while in the meantime the actual the balance of trade figures for September have been released.
The September terrorist attacks (and the resulting insurance claims) could lead to a significantly positive distortion of the trade balance figures. The GDP report may show an unexpected peak due to this once-off distortion. I will keep my council on whether this will be positive or negative, but take the possibility of strong peaks into consideration.
Lukas Daalder is hoofd research van ISB. Op moment van publicatie is hij privé long … [of: Op moment van publicatie had Daalder geen positie in de genoemde aandelen.] De informatie in deze column is niet bedoeld als professioneel beleggingsadvies of als aanbeveling tot het doen van bepaalde beleggingen. Uw reactie is welkom op
daalder@iex.nl.
Lukas Daalder is CIO voor Robeco Investment Solutions en is sinds 2009 werkzaam bij Robeco. Hiervoor was hij werkzaam bij IMC marketmakers, Bank Oyens van Eeghen, Amstgeld en Rabobank. Hij begon zijn carrière in de beleggingssector in 1992, na afronding van zijn economische studie aan de Universiteit van Amsterdam. Hij is daarnaast bekend als vaste columnist van het Financieele Dagblad.