I am pleased with the positioning of the portfolios I manage and believe we are well placed for the current volatility. We have made healthy profits over the last three months and during the previous market declines were well insulated against and retained our position well relative to the investment markets.
The recent dip is expected to lead to the third losing week in a row, following six straight weeks of gains. While that may have bled off some of the over-bought pressure, the bears may not be done yet. We’re headed into one of the weakest periods of the year, and the floors the bulls are hoping will hold up are going to be tested soon.
First things first though – last week’s and this week’s major economic data.
US Economic Data
Most of last week’s economic numbers were bigger-picture items
On the consumer sentiment front, the Conference Board’s confidence score fell drastically in August. The Michigan Sentiment Index, rose to a three-month high. It does make you question how two seemingly – so similar measures can end up with wildly different results.
Real estate continues to look stronger. The Case-Shiller home price index was up and July’s pending home sales are expected higher.
The surprise positive last week was Quarter 2 GDP growth rate – up above estimates; and, if July’s Factory Orders are any indication, then the trend may actually be improving rather than decelerating.
Some potential market-movers:
Construction Spending – this number has been generally healthy of late.
Auto Sales – Car sales have been relatively firm of late
Job Cuts and ADP Employment Change – this is the prelim before Friday’s unemployment rate figure and official jobs-created figure.
Nonfarm Payrolls and Unemployment Rate – economists are looking for 145,000 new private payrolls; and most expect the unemployment rate is not going to move from last month’s 8.3% figure.
If these figures fail to achieve estimates – this would create uncertainty and an expected decline in the markets – although the expectations are low and that may not inspire a positive move either.
Market Movements
After everything is said and done, the imminent path of least resistance is still downward-pointing. I am not anticipating a major correction but rather some sell trades, most likely just enough to fully burn off the overbought condition.
South Korea
The South Korean economy is starting to lose steam as the European debt crisis remains unresolved and export markets remain weak.
The latest figures show the country’s economy grew by 0.3% between April and June, down from 0.9% growth in the previous quarter.
The government is therefore looking at ways of boosting domestic demand to compensate for weakening exports.
UK Rises in Competitive Rankings
The UK has risen to eighth from 10th place in an annual study of global competitiveness.
The World Economic Forum’s (WEF) Survey said the UK had benefited from a more efficient labour market compared with more “rigid” European economies.
The US economy fell from fifth to seventh place, although WEF said it remained the top innovator.
Switzerland topped the table, followed by Singapore and then Finland in the survey of 144 economies.
The ratings are compiled using public data as well as executive opinion.
The survey placed China as the most competitive major emerging economy.
‘Innovative businesses’
The WEF said the UK had benefited from “clear strengths such as the efficiency of its labour market” and praised the UK’s “sophisticated and innovative businesses”. However, the UK’s macroeconomic economic environment – ranked 110th, down from 85th last year – was hindering competitiveness.
The Treasury said it “welcomed” the report, saying the UK’s improvement was down to the government’s reforms.
Europe’s north-south divide
The WEF survey showed a clear divide between Europe’s northern countries and the troubled periphery economies which are suffering from recessions.
In total, six European economies are in the top 10 – Switzerland (1st), Finland (3rd), Sweden (4th), the Netherlands (5th), Germany (6th) and the United Kingdom (8th).
But the southern Eurozone economies are ranked much lower, with Spain in 36th place, Italy 42nd, Portugal 49th and Greece 96th.
The southern economies, which are at the heart of the Eurozone sovereign debt crisis, have suffered a chronic lack of competitiveness and low levels of productivity that led to unsustainable imbalances in the economy, followed by rising unemployment.
The WEF urged an overhaul of labour regulations “sooner than later” as one of the necessary reforms to restore growth.
Switzerland maintained its top position thanks to its scientific institutions, a strong collaboration between academia and business sectors, high spending on research and development as well as its high rate of patenting per capita, the WEF said.
US political gridlock
The US ranking has continued to fall due to weakness in the overall economy as well as worries among businesses towards what they perceive as government meddling in the private sector and distrust towards politicians.
The WEF warned that in the US, despite being the world’s top innovator with the likes of Google and Facebook, political gridlock over fiscal tightening could dampen growth prospects.
The survey cited an inefficient government bureaucracy and tax rates as the two biggest impediments to doing business in the US.
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