FED's Beige Book: Hang in there America

The FED today relesaed its Beige Book and from one's point of view, the main focus was in sending out a message of confidence, signaling that though weak, there's still some growth in the economy. Nevertheless, there was also a strong emphasis on the fragility of this growth and how economic indicators could flip in no time.

Mostly, the risks are shown in the near-term, but on the bright side, this time the FED changed its statement from "we didn't see this coming" to "ok, we're hanging in there".

The most common words used were "mixed" "modest" "uncertainty" "increased slightly"... 

Here are some of the pinpoints taken directly from the Beige Book:

• Economic activity continued to expand at a modest pace (in past statements the FED used the phrase "weaker than expected")
• Consumer spending increased slightly in most Districts.
• Non-auto retail sales were flat or down.
• Demand for services generally positive
• Manufacturing mixed across the country
• Residential real estate remained weak overall (in past statements the FED used the word "depressed")
• Commercial real estate and construction weak, but improvements were noted in several areas
• Inflation edged lower.
• Software and IT firms in Boston reported mixed activity since July but expected to return to previous strong growth patterns by late 2011.
• San Francisco District showed expanded sales for technology providers... higher demand on software, e-books and mobile applications
• Manufacturing: Pace of activity slowed in many Districts.
• Loan demand stable or slightly weaker... Loan quality generally improving and credit standards unchanged.
• NY indicated delinquency rates increased on most categories and banks tightened standards for commercial mortgages and industrial loans
• Labor markets generally steady. Jobs in healthcare continued to increase
• Fewer  price preassures (but) food prices climbed highe

Overall, I'd say the FED changed drastically the tone from "depressed" to "steady", which is a good sign. The problem is, economic conditions are still fragile, and a hit from Europe's debt could create another downward spiral for the U.S. economy. Good to know, today the Italian Senate approved the austerity measures proposed by Berlusconi, so that'll create some stability in the near-term.

August's recap on the S&P 500

Mostly, I'd say it was a month full of bad expectations, with a remark on the consumer side and a developing political crisis in Washington. We saw most of the forward-looking data showing some signs of contraction in the economy. But on the other hand, hard data showed the U.S. economy still has some fight in it.

Nevertheless, job creation is null. Jobless claims can't seem to break the 400k level, and continuing claims show an even worse scenario since they keep going up. That in mind, and with manufacturing data reaching the very thin line between growth and contraction, I think the month ahead will have high volatility with a downward trend.

Please go to link below to see the graph in full size:
August on the S&P 500

Also, and most important, for now I'd be looking very carefully to data coming from Europe. France is defenitely not doing ok. As you can see in the graph, its industrial production keeps going down and manufacturing isn't going anywhere but down as well (actually, in contraction territory). Greece, Italy and Spain are the other ones to keep an eye on. Greece's data just confirms (at least for me) the eventual and inevitable default of its soverign debt: Industrial production -13%, unemployment 16.6%, GDP -6.9%, Retail Sales -8.3%... All worse than expected.

Italy... well, 8% unemployment, retail sales -0.2%, and manufacturing in contraction levels at 47. This is no news now, since we all know the ECB had to get in and buy Italian and Spaniard bonds to keep them solvent.

In Asia, China still showed growing inflation despite all efforts to contain it (6.5%) so my guess is we'll see more rate and capital requirement increases. And also, here's something extra on China: On Wednesday, the HSBC manufacturing index got to 49.9 points....

So my point here is, U.S.A. is fine (for the moment) but the real threat of a double-dip, this time comes from the outside, and that's Europe.

Grupo Mexico

On technicals Grupo mexico has been fairly responding to resistance and support levels. Personally I don't think we'll see it back at 37,but ob the other hand, there's a good chance we'll stick at current price (42-42.70) for most of July, with a slight pullback that will make the stock a bit more attractive. Either way and on a longer term, the Fibonacci retracements marks next resistance level at 45. RSI confirms a possible pullback before heading back up, and MACD shows a new upward trend well-above the signal. My price objective on a 12 month basis is 57 pesos.