The next two trading sessions in the US will see the release of initial jobless claims data, and unemployment statistics from the Labor Department. ISM non-manufacturing and US factory orders are on tap as well and they will surely be dissected by a very nervous Wall Street. Thus far this morning, the ADP report on private sector job conditions indicated a gain of 114,000 jobs in July; better than the expected 85,000 gain, but still lower than June’s 145,000.
Previously released sets of data has been pointing towards conditions that may best be described as fitting the “R” scenario if the US economic momentum remains aimed in the same direction. Things do not appear to be much better in the eurozone at the moment, either. The service sector there expanded at the slowest rate in almost two years. Italy’s indicators are flashing red while Spain’s are already indicating a stall underway. Signore Berlusconi might have to resort to some of the crooning he used to be known for, eons ago, in smoky Italian lounges, when he appears on TV tonight to explain the “situazione.”
China’s services sector moderated further in July as the five successive interest rate hikes by the PBOC appeared to have engendered their desired effect. With these three major regional economies hovering very near the 50-mark as regards their PMI indicators, the feeling of having hit an air pocket of some significant size is making most global investors quite queasy. The report that the UK managed to post more than a modicum of growth in its economy basically went by “under the radar” this morning. The obsession of the day has quickly turned from “debt” to “dip.”
Meanwhile, in the US of A, the reverberations of the “deal” that averted the default continue to bounce around the marble halls of various Washington buildings. One of them, in particular, the Pentagon. While defense spending mushroomed under former President Reagan and then exploded into a supernova under Mr. Bush, no one wanted to ‘go there’ as the expenditures were classified under the “sacred cow” category.
Now, after the realization has sunk in that the cheques being written for defense by the US government really are the proverbial straw in terms of size and weight (the US spends more on defense than the rest of the world combined), a possible era of (deep?) cuts is in the making. At this point, no one knows precisely how much and what parts of the Pentagon’s budget will be affected, or those of the State Department or the DHS. The up-and-coming bipartisan committee (by the end of November) will hopefully be able to shed some light on those uncertainties.
Also as yet uncertain, but certain to make it to the aforementioned committee’s discussion table is the issue of…higher taxes. Despite Mr. Boehner’s grin and gloating that he got “98% of what I wanted” from the Tuesday “deal” that was signed by the President, the idea of seeking new “revenue streams” remains very much alive.
The upcoming expiration of the Bush tax cuts (at the end of 2012) might be the opportunity to bring about changes to the revenue side (read: taxes) of the US’ budget in the same fashion that the spending cuts were ‘integrated’ into what should have strictly been a debt-ceiling raising issue. Treasury Secretary Geithner says that the “Republican leadership is still open to considering new revenue streams.” One must wonder which “leader” in the GOP he polled…
Jon Nadler is a Senior Metals Analyst at Kitco Metals Inc. North America