"Kee" Points with Jim Kee, PhD.


  • US Update
  • Global Update
  • Oil Update

US Update:  Two big storms in just a few weeks’ time will certainly muddle the economic data for a quarter or two, as the negatives of disruption evolve into the positives of rebuilding. Fortunately, “nowcasting models” that update weekly with fresh data release sallow for timely audits of how the economy is doing. Combined with more conventional tools like the Conference Board’s (and the Federal Reserve’s) Leading Economic Index, these help to measure the impact of various economic shocks on the economy. I’ll be sharing all of this with you in Kee Points as events unfold, but right now everything looks pretty solid. That is, the economic data continues to point to economic expansion, both here and abroad. US stocks seem to reflect this (up big Monday), and perhaps some weekend relief over events like Hurricane Irma (perhaps not as bad as expected) and no North Korea missile tests in commemoration of its 69th anniversary. Proposed new economic sanctions (trade restrictions) on North Korea (to be voted upon by the United Nations) were opposed by Russia and China, which I put in the “some things never change” category. In the US, I would say the most underreported story has been the increase in business investment spending this year, particularly on information technology equipment and software. The first two quarters have been strong, and that’s one of things I’m watching more closely as the year goes by.  Another development in the US was the sudden resignation of Fed Vice Chair Stanley Fischer, ostensibly for personal reasons. Fischer was highly respected, but at the end of the day I see this as neither here nor there.


Global Update: In Europe, there has been a surge in manufacturing (Financial Times) even as the euro hit a two-and-half-year high against the dollar at $1.20 per euro (which makes it difficult for European exporters). I think it is better put to say that a stronger European economy has led to a strengthening euro, particularly with expectations of an October tightening on the part of the European Central Bank (ECB), and lower expectations – due to hurricanes –of another US federal reserve rate hike this year by the US Federal Reserve (the Fed surprised many and raised rates following Katrina). Germany goes to the polls in a few weeks, with Angela Merkel the odds-on favorite to earn a fourth four-year term on September 24 (WSJ). I liked The Wall Street Journal’s headline, “Germany’s Boring Election is Nothing to Snore At,” making the point that the lack of drama there is a good thing. In France, President Emmanuel Macron has stated his intentions to free up the job market there through employer-friendly reforms. These are intended, in Macron’s words, “to boost job creation by giving more security and visibility to employers and more guarantees to workers.” Among these reforms are policies making it easier to dismiss workers, which also makes it less risky to hire them. In the rest of the world (e.g. Japan and emerging markets) growth seems to be a little stronger than what was expected at the beginning of the year, a fact reflected in things like higher copper prices (driven by China) and in the Commodities Research Bureau’s Raw Industrials index (the “Rind”).


Oil Update: Crude oil rose to a five-month high last week, with prices for a barrel of oil closing in the high forties. Saudi Arabia (OPEC’s largest member) continues to express an interest in pursuing OPEC’s desire, reached last year, to cap production and drain global oversupply (MarketWatch).  I like Barry Bannister’s characterization of Saudi Arabia as reasserting its ‘central bank of oil’ role (Stifel). The relationship between oil prices and stocks over the past several years has been more vague than what you would expect given the commentary in the press (i.e. higher oil means higher stock prices). Looking at percentage changes, oil has been much more volatile than stocks. Conceptually, the impact of oil prices on stocks depends upon what’s driving them; a higher oil price due to higher growth (early 2000s) tends to be bullish or positive for stocks, while a higher price driven by supply restrictions (1970s), tends to be bearish or negative. I’ve stated in the past my view that, overall, the recent supply-driven oil price decline, which is due to US fracking and OPEC factioning, is a positive for the global economy. That’s because most of the world’s output is produced by net importers of oil (they consume more than they produce). But there is a price below which oil becomes destabilizing to the regions that produce oil, and that can be destabilizing to the world in general. So, the sense I get from watching the interaction between stocks and oil prices is, “low is good, but not too low.”