Wednesday, September 2, 2015

Chart update IV

The only thing that has changed meaningfully in the past week or so is volatility: both implied volatility and the volatility of stock prices. Swap and credit spreads, gold, commodities and the dollar are largely unchanged in recent days.

What's the source of the volatility? It could be the disconnect between investors' fears of the future and the lack of evidence that the fundamentals of the U.S. economy are deteriorating. Fears can't get traction if they don't impact the economy in some fashion, but they can make for choppy markets.

ADP has been doing a somewhat better job of late in predicting the monthly change in private payrolls. Their estimate (released today) for August (+190K) is pretty close to the market's guess (+205K, to be released by the BLS this Friday), and either value would be a nonevent since it wouldn't represent much of a change from the average of the past several years, and it would be well within the normal monthly variation.


terex said...

Hi Scott,

I enjoy reading your blog - even if I am not always as positive as you are/have been (my bad :-). I have a question for you if you find the time:

In 2015 global trade has been falling the most since the last recession. Not only in USD but now also in volume! That didn't change last month, but it did go from bad to worse (into negative volume growth). I haven't seen you comment on that, but surly this is something worth reflecting upon? The underlying reason might be fairly clear (slower China, falling commodities, "trade politicization" (e g Russia)). But with leverage high and slow productivity/income growth and with fairly high valuations should't a cyclical downturn be just a bit risky at this stage?


Scott Grannis said...

Re Global Trade: According to the figures from the CPB Netherlands Bureau for Economic Policy Analysis, global trade volume surged in June, with the result that year over year growth was 2.6%. This was preceded by a 4% annualized decline in the six months ended May, but that slump appears to have faded. We'll have to wait for more data to be sure, however.

It's also worth noting that the U.S. economy is the least reliant on global trade of the developed economies, given that exports represent only about 13% of GDP. Eurozone economies are far more dependent on trade. According to Eurostat, German exports of goods and services represent a whopping 48% of GDP. For the UK, it's 27%; for Switzerland it's 64%.

Exports to China represent only 0.7% of US GDP. So even a huge decline in China's purchases from us would be barely noticeable.