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Summary of the Economy and Financial Markets October 5, 2013

Posted by hslu in China, Economics, Energy, Euro, Global Affair, Gold, jobs, Oil, stocks.
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I wrote this short report for my friends in Dallas yesterday; October 4, 2013. It helps me to get a grip of what’s going on in the financial market. It is a very simple and brief summary of what’s important over the last month on Bonds, stocks, crude oil and gold. I am learning to spot investment opportunities and I thought understanding the macro economics is essential.

  • The Fed delayed tapering due to deteriorating economy and pending gov. shutdown.

    • Unemployment rate @ 7.3%; Labor participation rate @ 63.2%; lowest since 1970.
    • U6 remains at ~14%; 90,473,000 not in Labor Force – BLS data.
    • Stock market popped due to QE but gave back gains 3 days after- A concern!
    • Treasuries rallied: 10-year Bond yield to decline from ~3% (record low: ~1.40%.) Watch TBT.
    • Government shut down and pending debt ceiling fight (2 weeks) will impede rally
    • Emerging markets had relief rallies.
    • Countries with current account deficits continue to see market/currency decline.
    • India and Indonesia in trouble.
  • Crude oil and metals continue to trade lower;
    • China slow down weighs and Inflation absent.
    • Bull market in gold ran out of steam.
    • Economy needs to pick up steam to see crude oil and gold moving higher.
  • European economic conditions improved but recoveries slow to come.
    • Merkel stayed on for 3rd term. Steady as she goes. No major policy change.
    • Recession may be over.
    • Sovereign debt yields declining: Spain and Italy 10-year Treasury yield. LT buy?
  • Japan
    • Business confidence improves: capital investment up 5.1%
    • GDP up 3.8% in Q2 2013; revised up from 2.6%. 4.1% in Q1 2013.
    • Sales tax increased to 8% (4/2014) from 5%. Up to 10% in 2015.
    • Government: ¥10 trillion (~$100 B) stimulus: lower than expected. GDP = $5.96 trillion.
    • BOJ on target to increase currency float. Deflation may be over.
    • Debt: ¥1,000+ trillion. Deficit: 40+% spending borrowed. Structural reform from Abe not enough.
    • DXJ and YCS are still in play. US government shutdown affected Nikkei’s decline and yen’s strength.
  • Chin Economy expanded at ~7.5%
    • 12-5 is in progress (2011 – 2015): sustainable growth of 7%, industrial upgrading and the promotion of domestic consumption. 11-5 expected 7.5%. Actual 11%.
    • 10 new cities to accommodate 250 million people from farms: urbanization
    • 户口制度to relax?
    • Shanghai Free-Trade Zone: testing for 2-3 years. To expand to other areas.
    • Preparation for a floating 人民币?
    • More countries signed up for direct exchange with人民币: by-pass US dollar.
    • China ADRs could be good investments.

 

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