August was a painful month for most markets around the world. Other than fractional gains in foreign bond markets (mainly in developed countries), last month delivered a deep shade of red ink far and wide. The big loser: stocks in emerging markets (MSCI EM Index), which shed a hefty 9.0% in August–the biggest monthly setback in more than three years.
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● Dallas Fed Index: General Business Activity Index tumbles in August
● Chicago PMI ticks down to 54.4 for Aug, but remains in solid growth territory
● Eurozone PMI: manufacturing activity steady at moderate growth level in August
● China PMI: factory output falls sharply in August
● Eurozone unemployment rate ticks down to 10.9% in August
● Germany’s jobless population falls more than expected in August
● IMF anticipates weaker-than-expected global growth due to China

The ISM Manufacturing Index is expected to tick higher to 53.0 in tomorrow’s update for August vs. the previous month, based on The Capital Spectator’s average point forecast for several econometric estimates. The prediction is moderately above the neutral 50.0 mark and so the current outlook still translates into a forecast of growth for this benchmark of economic activity in the US manufacturing sector.
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Fed Vice Chairman Stanley Fischer over the weekend laid out the rationale for raising US interest rates in the near future, perhaps as early as next month. His reasoning boils down to two main arguments. One, “the economy has continued to recover and the labor market is approaching our maximum employment objective.” Meanwhile, inflation is still low—“persistently below” the Fed’s 2% target, he recognized in a speech on Saturday. But that won’t last, he explained, advising that “there is good reason to believe that inflation will move higher as the forces holding down inflation dissipate further.”
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● US personal income & spending rise in July
● US consumer sentiment slips to 3-month low in August
● A Fed rate hike in September? Maybe, says Fed Vice Chairman Fischer
● Eurozone flash estimate of annual inflation in Aug: stable but close to flat at 0.2%
● German retail sales accelerate, rising 1.4% in August
● Italy retail spending falls for second month in August
● Japan industrial output slides 0.6% in July

● Making Sense of Markets: An Investor’s Guide to Profiting Amidst the Gloom
By Kevin Gardiner
Summary via publisher (Palgrave Macmillan)
Making Sense of Markets argues that received wisdom is still far too pessimistic, and that investment opportunities have been missed as a result. It suggests that the great panic of 2008 had its roots in finance, not a flawed global economy, and it tackles some popular concerns – debt, demography, Western decadence for example – head-on, showing succinctly why they have been overdone. The book will then explain how investors can take advantage of these insights in building a long-term investment portfolio. It pays particular attention to behavioral influences such as the interaction of media and markets. It suggests that the conventional view of investing as a search for an optimal portfolio – as opposed to a satisfactory one – is misplaced. It argues that conventional financial analysis, not investors’ living standards, may be the long-term casualty of the latest seizure in capital markets.
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Consumer spending and income continued to post moderate gains, according to this morning’s update for July from the US Bureau of Economic Analysis. Inflation remained tame in the report, with the personal consumption expenditures index higher by only 0.3% from a year earlier. Otherwise the numbers du jour reaffirm the view that a solid if modest US expansion was intact through last month.
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Treasury yields held on to their modest rebound this week through Thursday’s close, ahead of the Federal Reserve annual conference that begins today in Jackson Hole, Wyoming. No doubt the discussions will center on whether the central bank will begin raising interest rates at its Sept. 16-17 policy meeting. Earlier this week, New York Fed chief Bill Dudley threw cold water on the prospects for tightening next month, explaining that the case for a rate hike looked “less compelling” relative to two weeks earlier. The catalyst for his cautious view, of course, is the recent market turbulence. But in the wake of this week’s US economic reports, it’s not obvious that the macro trend is stumbling for the world’s largest economy, even if Mr. Market’s hysterics of late suggest otherwise.
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● US GDP growth revised sharply higher to 3.2% for Q2
● US jobless claims fall 6,000, close to multi-decade low
● US pending home sales edge up in July–up 7.4% from year-earlier level
● US consumer comfort index jumps to 5-week high
● Eurozone economic sentiment ticks higher in August

This morning’s macro updates reaffirm the case for cautious optimism on the outlook for the US economy. The revised second-quarter GDP data show that growth was substantially stronger during the April-through-June period: 3.7% vs. the initial 2.3% estimate (seasonally adjusted annual rate). In addition, today’s weekly report on initial jobless claims reveals that this leading indicator for the labor market remains close to multi-decade lows. In short, the latest figures suggest that business cycle risk for the US is still low.
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