1. Chicago Fed National Activity Index for August - A shocking fall which means US recession, though still unlikely, should be on your radar.
2. UK's 2Q Monster Current Account Deficit - A record deficit. That's what happens if you are energetically reflating and 'fiscally stimulating' when all your neighbours are deflating hard.
3. Singapore's August M2 Surge - A big monthly jump, but solely powered by a sudden wave of new lending to the island republics slightly beleaguered manufacturers. A sign not of buoyancy, but of industrial stress.
1. Chicago Fed National Activity Index File the 0.87 fall in August’s index under ‘hope it’s a blip’. When this weighted average of 85 indicators falls below minus 0.7 on a 3m basis, it suggests recession is already underway. The minus 0.87 August reading leaves the 3m at minus 0.47, its lowest reading since June 2011, and falling. But this size of blip is quite rare outside recessions: sub-minus 70 readings have happened only 6 times in non-recessionary times so far this century – and three of those were in the last 18 months. Industrial weakness was the swing factor in August’s decline, with production-related indicators stripping 0.58pts from the index, vs the +0.08 added in July. Consumption and housing stripped a further 0.23pts from the index, whilst employment indicators were responsible for 0.04pts of the drop, and sales/orders/inventories for the final 0.1pts.
2. UK Current Account: A blowout in the current account is what one
can expect if a country is stimulating both fiscally and monetarily when its
trading partners are consolidating hard. Nonetheless, the £20.8bn 2Q deficit,
and the revision of 1Q’s deficit up to £15.4bn, are still shocking. The 2Q
deficit is the worst on record, and was the product of a record £28.1bn deficit
in traded goods and a £5.2bn deficit on net international income –
also a record. This leaves the current
account deficit at 3.1% of GDP in the 12m to 2Q, which is historically about as
large as the imbalance between savings and investment has been allowed to get
in Britain. It is where Britain was
trading at the peak of the cycle in 2007.
Secondly, it also tells us that
Britain’s private sector is very rapidly eroding its savings surplus: in fact,
during 1H, there was a savings deficit of £1.2bn. Now, the ability and willingness for savings
surpluses to dwindle can allow domestic demand to run ahead of income in the
short to medium term: this now looks to have been the fuel allowing Britain’s
economy to escape the worst impact of the Eurozone’s depression (assuming one
doesn’t take the GDP data at face value). It now looks as if that 'joker' has already been played.
3. Singapore M2: More than likely to fly below the radar, it
is worth noticing the sharp underlying acceleration in M2 growth to 7.2% yoy in
August from 5.9% in July. That doesn’t sound much, and it doesn’t even look
much on the chart. Nevertheless, there are three things to notice. First, the
modest yoy acceleration was the product of a monthly rise which was 1.8SDs
above seasonalised expectations. This was the biggest singlemonthly leap against trend since Sept 2008,
and it was sufficient to drag 6m monetary momentum back into positive territory
for the first time this year.
Second was the reason for the leap: a 2.3% mom
and 19.2% yoy rise in bank lending, driven above all by a surge of 21% mom and
69.5% yoy in lending to manufacturers. In fact, new lending to manufacturers
accounted for just under half the total new loans made during the month – this
is most unusual for Singapore.
Third, that these loans are being made against a
background of cashflow weakness (hardly surprising given industrial production
fell 2.3% mom and 2.2% yoy in August): in fact the S$10.5bn in new loans made
were answered by a rise of only S$5.3bn in quasi money (principally deposits).
The strength of M2, then, signals stress.
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