In this week’s edition…
The Beacon of Light for Emerging Markets: India – India reported a 7% rise in GDP during the April-June period (year-over-year), which is at pace with China and scores ahead of the other EM stalwarts: Brazil (recession), Russia (recession) and South Africa (slowing). Prime Minister Narendra Modi has pushed forward some reforms to open India’s markets to foreign investment and to expand trade, and just recently scrapped what would have been an ill-advised tax on foreign investment. India still has issues that could be easily resolved—ending high tariffs on some food imports, for instance—so there is a long way to go. But that can be construed as a good thing. Should the Transpacific Partnership be approved soon, and should Modi push forward with more open market reforms, it could open several more doors for India’s economy.
Meanwhile Brazil Continues to Fizzle – On balance, however, the Emerging Markets are still being weighed down by the commodities-sensitive countries like Brazil. Their economy fell into recession in the three months to June, with GDP falling by 1.9% quarter-on-quarter. In Brazil, it’s also a matter of stagflation—inflation is close to double digits while the benchmark interest rate is over 14%. Tightening monetary policy, in an effort to stem inflation, would also mean choking off an ailing economy further. Brazil is between a rock and a hard place policy-wise. To make matters more difficult, China is a big consumer of Brazilian exports and slowing growth there could hurt trade even further.
Mixed Signals from Global Purchasing Manager’s Indices – Manufacturing is either growing, contracting, or stagnating depending on where you look. For Europe the final manufacturing Purchasing Managers’ Index came in at 52.3 in August, marking two years of expansion. That would be great news if only China’s PMI wasn’t signaling contraction—China’s official Purchasing Managers’ Index fell to 49.7 in August from the previous month’s reading of 50.0 – the weakest reading in three years. The sluggish data underscores the anxieties investors have about a slowing China, and the potential effects it can have on the global economy and potential stock sell-offs. Meanwhile, in Japan the PMI expanded at the fastest pace in almost two years in August, reaching 53.7 from 51.2 in July, and marking its highest point since October 2013.
Battered Hedge Funds – Hedge funds have largely taken it on the chin over the last month or so, in light of increased market volatility. Several noteworthy hedge fund managers reported deep losses for August as global equities sold off rather erratically. Bill Ackman’s fund, Pershing Square Holdings, dropped 9.2% on month and is now down 0.1% since January. Other hedge fund losses for August: Greenlight Capital -5.3%; Third Point -5.2%; Jana Partners -4.3%; Viking Global -2.1%; Omega Advisors -6%; Andor Capital -4.5%.
Global Stocks Dip After Inconclusive Jobs Report – all eyes were on the U.S. Nonfarm payrolls number Friday, given it was the last real piece of data the Fed might consider when deciding whether to raise rates on September 17. Prognosticators and economists are increasingly ironic in their desires when it comes to data. Weak numbers are somehow a good thing, since that implies the Fed might delay raising rates for another few months. But, at the same time, weak numbers are a bad thing because it means the economy is more fragile than most anticipated. It’s a lose-lose for U.S. economic data, seemingly. Nonfarm payrolls rose 173,000 in August which, while less than estimates, still brought the unemployment number down to 5.1%. The Labor Department also said revisions showed more jobs were added in June and July than previously estimated. My read: the job numbers are just fine and the Fed should proceed with getting this market used to gradual rate increases from here.
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