Traders are still reeling from yesterday’s PMI data that shows a slowdown looming

Outlook

We get another 10-year Treasury auction today. Players are girding their loins for the new tariffs to hit tomorrow, Brazil’s already applied.

Traders are still reeling from yesterday’s PMI data that shows a slowdown looming. They are worried about upcoming BLS data being fiddled by Trump lackies (and no one has any doubt that is exactly what to expect). We will get new Fed gov nominations any day now (by Friday)—Trump says TreasSec Bessent withdrew his name—and while the new folks can’t change the vote, the shadow chief can make noise. Noise will be confusing. it’s possible we get the replacement nomination for the early-retiring Kugler today (to cause Ruckus 1) and the new chief later (Ruckus 2).

On the geopolitical front, Friday is the deadline for Russia to meet Trump’s demand for a ceasefire in Ukraine. Trump is talking big but has only big words, no big stick. Russia will almost certainly decline to go along.

Relief that the tariff uncertainty was ending was unwarranted, as we thought. Uncertainty arises over the new list, and that’s just today’s list. 

Two other economies on the edge are Japan and the UK. It’s not worth wading through Japanese data (wages, etc.) because what counts is the interest rate outlook. Whatever its reasons, the BoJ is withholding a rate hike.

The other economy is the UK, consistently publishing poor data and the press nagging the government and especially the Chancellor for failing to count the angels on the head of the pin and other impossible tasks. The BoE meets tomorrow and is likely to cut rates despite the most recent inflation rate at 3.6% vs. the universal target of 2%. The next inflation release is Aug 20 with Trading Economics forecasting 4%.

As of this morning, the sterling recovery is especially iffy. Reuter’s Dolan has a dandy essay on the UK economy. It’s not just Brexit and Covid that put the UK in this pickle, but we consider Brexit a core issue for sentiment and not just data. 

Finally, the Atlanta Fed issued a nowcast for Q3 GDP at 2.5%, from 2.1% on Aug 1. We get another one tomorrow. Worth noting is the unprecedented -width of the Blue Chip forecast, roughly from -0.50% to 1.50%. We need to add this to our list of uncertainties.

Forecast

The US economy shows little sign of jumping down the rabbit hole. The Atlanta Fed GDP is not an offset to the gloomy PMI figures, but it introduces more noise into an already 16-trumpet blaring environment. The relief rallies are about to go down in flames. At the same time, other economies, especially Germany, are hanging on by their fingernails. At a guess, this is why the euro recovery is tepid—it needs a better goad. In short, the dollar can stage a comeback today and over the next few days before the lasting nature of Trumps shocks get a grip again. We do not expect a lower low, though—just sideways muddle.

Tidbit: It’s interesting that China and Brazil are, so far, the two countries giving Trump a hard time and refusing to bend the knee. China is the world’s second largest economy and Brazil, the 10^th. India is 4^th but as usual, can’t manage its way out of a paper bag and has probably confused Trump, who has the same degree of chaos, if for different reasons. The only thing he has to hold on to is that Russian oil. India could just agree to forego the oil and pirate it in anyway.

The others in the top ten are all European if you include the UK as European. 

Tidbit: Trump is suing banks for discriminating against “conservatives.” How little this guy knows! Trump was persona non grata at banks because his documents were patently false and inconsistent with one another, and he defaulted numerous times, with the Bankers Trust default in 1992 known by absolutely everyone. He declared bankruptcy six times. One story in the late 1970’s-early 1980’s was a bank loan he took with fine art as collateral. Then he sold the art without telling the bank. Persona non grata is too polite a term for how New York bankers thought about him.

Why all US banks shunned Trump and how Deutsche Bank managed to go on lending to him is described in detail in a good book titled Dark Towers by David Enrich. The court should laugh him out of the room. The first criterion for making a loan, as they teach in credit training 101, is “character.” Those without it don’t get loans. It has nothing to do with “conservative.”

Tidbit: The Kansas City symposium is being held Aug 21-23. The topic is, somewhat ironically, “Labor Markets in Transition: Demographics, Productivity and Macroeconomic Policy.” On the demographics, the baby boomers are not dying fast enough and the population increase from births and immigration is not sufficient to keep Social Security alive much longer. USAFacts.org just had a bone-chiller on that.

As for productivity, surely a central question will be how much AI is going to help that, while also throwing droves of workers out of their jobs, too. As for macro policy, huh? That includes fiscal, so the central bankers can go have a coffee while the finance ministers and academics throw that around. 

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