Political  Calculations

What a weird day for the stock market last Tuesday. And the weirdness started early. Pragamatic Capitalism's Cullen Roche sets the scene:

Here’s a brief rundown of some of the data we saw in the last 12 hours:

  • U.S. Flash PMI came in at 52, weaker than expected and down from 54.6 last month.
  • German Flash PMI hit a six month low of 48.8.
  • China PMI hit a two month low of 50.5, down from 51.6 last month.
  • Richmond Fed Manufacturing came in at -6 vs expectations of a +3 reading.
  • Redbook sales were up just 1.8%, down from 2% last week.
  • New home sales came in at 417K, below estimates of 419K, but up from last month’s 411K.

So, not a great day for data. And yet the equity markets in Europe were up 1-3% and the S&P is up over 1%. No one I’ve talked to can make a whole lot of sense of this.

The big news in Europe overnight was that the ECB and Germany in particular might be easing on their austerity approach. The Euro tumbled in response and European equities soared despite very weak overall PMI data. So I think it's the Abenomics effect. As the Japanese market rallies higher almost every single day on the back of the "whatever it takes" commitment by the BOJ/MOF, there appears to be a belief that the policy is already working and worth trying elsewhere. It might just be that simple – we’re seeing market participants all over the place capitulating to the power of governments.

Now, that's what we would call a noise event, when the stock market completely goes off in a speculative direction that's not directly supported by a real (or implemented) change in their fundamental outlook, which we measure in the form of the signal provided by their announced expected future level of dividend payments.

Political Calculations

Political Calculations is a site that develops, applies and presents both established and cutting edge theory to the topics of investing, business and economics.

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