The big news this week is expected to be Friday’s August . The report on Thursday will also be scrutinized. We are in an environment where bad news will be considered good news, since financial markets are expecting a key interest rate cut by the FOMC on September 17th.
In preparation for the upcoming , the survey will be announced on Wednesday. It will be interesting to see how many of the 12 Fed districts report labor market problems and/or economic weakness.
Gold is making a record high as government budget woes in Britain and France are weighing on government bond yields. Italian and U.S. government bond yields are also rising. So essentially, the bond vigilantes are back and influencing the long end of the yield curve.
Britain and France are led by parties that are expected to be ousted in the next election by Nigel Farage’s Reform Party and Marine Le Pen’s National Rally party, respectively. Northern Europe has acute demographic problems and has failed to successfully assimilate immigrants, so a “clash of civilizations” is underway that is undermining government budgets due to high social expenses.
The other problem plaguing Europe is that so far this year is its erratic electricity grid. As an example, Spain has 503 negative price hours this year, which compares with 451 in Germany and 436 in France. Negative electricity prices stop the incentives to add more solar and wind electricity to power grids. Strong hydroelectric output in Spain has also contributed to negative electricity prices this year. Due to negative electricity prices, green energy expansion is anticipated to slow dramatically, despite the European Union’s Net Zero mandate.
Back in the U.S., there are some green shoots in the reports. The Institute of Supply Management (ISM) on Tuesday announced that its manufacturing index improved to 48.7 in August, up from 48 in July. Since any reading below 50 signals a contraction, the ISM manufacturing index has now contracted for six straight months.
The details in the ISM manufacturing report were mixed, since a sharp drop in the production component to 47.8 in August (down from 51.4 in July), was offset by an August surge in the new orders component to 51.4 (up from 47.1 in July). Only seven of the 17 industries surveyed reported an expansion in August.