Market rallied then gave back its gain at close. The market today varies more according to traders than fundamental.
The US Economy
No much news ahead of FOMC meeting
- US housing starts in august dropped by 5% MoM or 5.8% YoY, building permits increased by 3.2% YoY
- On the positive side of housing, Lennar Corp came out with earnings and report their backlog up 16%. This could be an indication of improvement in construction sector.
- Both ICSC and Redbook sales index dropped from last week
- Philly Fed State Coincident Indexes Decline in August
- No much news ahead of fed meeting
The bottom line
We have to watch for break outs either on the high or low boundaries of the recent trading band. If there is a break on the high side, we would be careful but take short positions. If there were a break on the lower bound, we do not think it is a buying opportunity given the current macro fundamentals and the hurdles in Europe and the United States until November.
The European Economy
Greece denies talks about exiting euro, downgrading continued
- Italy downgraded from A+ to A with negative outlook by S&P
- Greek government spokesperson denied the report saying a referendum is in plan about exiting from the euro zone
- Suicide rate in Greece doubled on austerity
- Greece has made ‘Good progress’ with the IMF meeting. Next trench of payment ‘on track’.
The bottom line
We do not expect Greece to default before receiving the October trench. If it would, it will be a major shock to the market. We are waiting for the announcement of the conference call result.
The Canadian Economy
Canadian market is in trading range, no news today
The bottom line:
Points to consider: cost of living (home prices, retail prices, services) are much higher than the US. Labour rate is not competitive. The major cities are running at very high expectations today, which may indicate the peak of a business cycle.
The market today: Traders vs fundamentals for the US market
The market rallied during most of the day but S&P500 failed to break through the 1220 resistance level. There has been a lot of speculation by traders that the Fed will stimulate the economy again tomorrow. We believe that is not the case becasue the Fed has already brought about stimulus to the market and stabilized the 10-year bond rate. We know from previous company reports that they are raising prices to combat inflation in commodities. This inflation is presumed to have been caused by the previous fed easing. The Fed cannot afford to reignite the commodity inflation at this point. Last year the fed was worrying about deflation, which is not the case this year. Today the problems in the economy are more fiscal constraint.
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