The New York Federal Reserve announced that general business conditions unexpectedly fell to negative 7.72 instead of the expected rise to zero from negative 3.76. The economy is contracting as quantitative easing II has ended and consumer confidence is hitting lows not seen since the era of Jimmy Carter. However Wall Street is experiencing another triple digit rally this morning based on the news from Japan that their economy is contracting at a rate less than expected.
So the market is up because Japan’s recession is less than anticipated? The Japanese yen is posting session highs against the US dollar as our dollar depreciates along the Euro. Would you buy stock based on this Fed report? It is time to read between the lines and understand that the stock market is either:
- Being manipulated by the Federal Reserve through POMO or
- People are ignoring manufacturing/economic reports and are buying stock based on another country’s recession information.
The Federal Reserve has no standard ammunition left to impact the economy. Interest rates will be close to zero through 2013 as announced last week. The only non-standard means to continue this economy is quantitative easing 3 which should be announced by the end of September. Based on the impact of the first two stimulus programs, this will only further devalue the dollar and postpone the eventual economic collapse.
A gauge of manufacturing in New York State showed the sector unexpectedly contracted for the third month in a row in August as new orders fell to their lowest level since November 2010, the New York Federal Reserve said in a report on Monday.
The New York Fed’s “Empire State” general business conditions index fell to minus 7.72 from minus 3.76 the month before. Economists polled by Reuters had expected a reading of zero.
The survey of manufacturing plants in the state is one of the earliest monthly guideposts to U.S. factory conditions. The sector has softened through the first half of the year alongside the broader economic recovery.
New orders worsened to minus 7.82 from minus 5.45, while inventories fell to minus 7.61 from minus 5.56.
“This is consistent with the negative tone that has permeated throughout themarkets. Clearly we are not starting the new round of manufacturing data on good footing,” said Tom Porcelli, chief U.S. economist at RBC Capital Markets in New York.
U.S. stock index futures trimmed gains immediately following the data, but Wall Street was still poised to open higher following a volatile week. Treasury prices gained slightly and the U.S. dollar hit a session low against the yen.