The front-page news today is the Democratic National Convention. The Financial Times (FT) leads with “Economy blow in key week for Obama,” which discusses the weak manufacturing report just released in the context of the election. The Wall Street Journal (WSJ) leads with “Democrats Rush to Rebut GOP,” and the New York Times (NYT) leads with “First Lady Tops Opening Night for Democrats.” Less meat in those articles, but that is what happened.
Not much else happening today, but there are some good stories looking ahead and some good coverage of things we have discussed in the past. The big pending issue is the European Central Bank (ECB) meeting tomorrow, and all three papers hit that. The FT has “All eyes on Draghi over bond proposal” (p. 2), stating correctly that the world will be parsing whatever he says or—possibly more importantly—doesn’t say about the ECB bond buying program. He is widely expected to announce such a program, but the details will matter—a lot. The WSJ did not deal directly with the pending meeting but did hit on a problem the ECB has that we discussed yesterday in “Lending Gaps Challenge Central Bank.” Borrowing costs are getting higher in the peripheral economies, as the euro convergence reverses, making it harder for the ECB to help them and complicating whatever is announced. Finally, we have “European leaders step up talks before policy meeting” in the FT. They have a lot to talk about. Make no mistake: this is a very important meeting for the future of the euro in the near term. Stay tuned.
Two other important but not as immediate stories out there. First are China and the tensions in the surrounding seas. This made the front page of the FT, with “Making waves – China warns US over sea dispute,” with a follow-up inside. It also hit the WSJ with a less definitive headline, as “Skepticism Greets Clinton in China” (p. A10), and the NYT with “Smiles and Barbs for Clinton in China” (p. A9). Although the headlines were less definitive, the stories were unmistakably about the U.S. presence in the region and its trying to contain the disputes we have discussed.
Second most important is food, with two stories in the NYT: “Two Hungry Nations Collide Over Fishing” (p. A4) and “Experts Issue a Warning As Food Prices Shoot Up” (p. B5). Resource scarcity is a growing issue and will only get worse.
For the U.S. economy, we have the usual good news/bad news situation, with “Sales of big US carmakers accelerate” (FT, p. 14) and “August US Car Sales Surge” (WSJ, p. B2) being the good, and “Manufacturing Contracts as New Orders Show Decline” (WSJ, p. A8) and “Manufacturing Activity Declined in August” (NYT, p. B7) being the bad. I believe we are making progress, but it is slow. One of the reasons I believe this is that cars, like houses, are long lived assets. Buying either requires a commitment to and belief in the future, which is a fundamental part of the economic healing process. Readers: Are you buying or looking to buy anything long lived? Why or why not? I would be interested to hear thoughts in the comments. In any event, as both improve, the underlying psychology continues to improve—and that will ultimately lead to a faster recovery, as uncertainty eventually starts to recede. Not until after the election though.
Speaking of uncertain, I was always pretty certain that the Libor story would be back in a big way, with lawsuits, and here we go. Page B1 of the NYT has “States Sift for Libor Losses.” It actually says that this could be as big as the tobacco lawsuits. Pretty bad news for the financial industry, especially the big banks.
Have a great day!