Wednesday December 13, 2006 - 09:59:13 GMT
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Black Swan Capital - www.blackswantrading.com
Validation of an inkling
â˘ The rate of annual growth in Chinese industrial production rose to 14.9% in the year to November, from 14.5% in October, said the National Bureau of Statistics. (BBC)
â˘ Key Reports (WSJ):
7:00a.m. MBA Refinancing Index.For Dec 9 Wk. Previous: +13.7%.
8:30a.m. Nov Retail And Food Sales. Expected: +0.2%. Previous: -0.2%.
8:30a.m. Nov Retail And Food Sales, Ex-Autos. Expected: +0.3%. Previous: -0.4%.
10:00a.m. Oct Business Inventories. Expected: +0.4%. Previous: +0.4%.
ââŚa high-powered delegation led by Henry Paulson, America's treasury secretary, will fly to Beijing to persuade China to take measures to reduce its surplus. But are they heading to the right place? At the global level, the biggest counterpart to America's deficit is the combined surpluses of the oil-exporting emerging economies. They are expected to run a total current-account surplus of some $500 billion this year, dwarfing China's likely surplus of $200 billionâ
âCounting only the Middle East oil exporters, the surplus has surged from $30 billion in 2002 to an estimated $280 billion this year. One reason why this gets much less attention than the smaller $160 billion increase in China is that only a fraction of it has gone into official reserves, which are publicly reported. Most of it is stashed in government oil-stabilisation or investment funds, such as the Abu Dhabi Investment Authority, which are much more secretive than the People's Bank of Chinaâbut which probably hold just as many dollar assets.â
FX Trading â Validation of the inkling?
We did get at least inkling of the dove in yesterdayâs Fed statementâit was the âsubstantialâ word relating to housing. The dollar has backed up on the statement. Our view is housing is the Achilles Heel of the US economy.
Today we get a look at retail sales. It could provide some validity to the inkling we got yesterday.
RETAIL SALES CHART
We continue to believe weakness in housing can and likely is already playing a role in consumer spending. We think a recent piece penned by Bloombergâs Caroline Baum, on December 11th, sums it up quite well, suggesting those rallying around the recent âgoodâ jobs report to support the claim Mr. Consumer is doing just fine might not be seeing the entire picture properly:
âOver time, from one business cycle to the next, the goods sector has been found to lead the rest of the economy. Why should this time be different?
ââThere's a time element to the business cycle,' says Joe Carson, director of global economic research at Alliance Bernstein. âIt starts in durables -- in big ticket items -- and spreads to services. Sometimes it takes longer than others, but the pattern has been in evidence since Day 1.'
âSome economists pointed to the 154,000 increase in private service-producing jobs in November as a sign the economy was on solid footing. Goods-producing employment fell for the fourth month in five, but hey, excluding those stalwarts -- manufacturing and construction -- everything is fine!
âManufacturing and construction jobs are only 16 percent of non-farm employment, but they account for 45 percent of real gross domestic product, according to Carson.â
We noticed retail sales declined last month despite rising incomes and falling gasoline pricesâboth should have been boosters. Todayâs report could lead to some fireworks should it validate the dove-factor in yesterdayâs Fed statement--stay tuned.
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