Optimism was supported by hopes that Obama's job stimulus would help boost the US employment situation and the German court decision would clear hurdles for the votes in support of the new EFSF. Economic indicators released were not as disastrous as expected. The Beige Book signaled that growth moderated but labor markets were described as 'stable'. Wall Street rallied with the DJIA and the S&P 500 indices gaining +2.47% and +2.86% respectively. In the commodity sector, oil follow equities' suit and jumped with the front-month WTI contract surging +3.86% and the equivalent Brent contract rising +2.57% to the highest level in a month. Gold slumped, losing -2.97%, as risk appetite increased.

In the Beige Book compiled by the Kansas City Fed covering the period before August 26, it's stated that economic activity continued to 'expand at a modest pace, though some Districts noted mixed or weakening activity'. Consumer spending 'increased slightly in most Districts' but 'non-auto retail sales were flat or down in several Districts'. Manufacturing activities were 'mixed across the country, but the pace of activity slowed in many Districts'. The employment market was mostly described as 'stable' although there were reports of modest growth in some Districts. The tone of this Beige Book was obviously more downbeat than the previous one. However, while the report showed that growth was below trend, it did not signal signs of recession. Moreover, the employment outlook was not miserable.

The JOLTS delivered a mixed picture of the job market. The number of job openings in July was 3.2M, similar to June's reading but was +1.1M above the recent trough in July 2009. The hires rate stayed at 3% and the number of hires was 4M in July, up +0.4M from the recent trough in October 2009. Note that both the number of job openings and the number of hires remained well-below pre-2007 recession level. Today, the market will focus on the initial jobless claims data which probably shows a +1K addition to 410K in the week ended September 3.

The ECB and the BOE will decide on monetary policies today but we do think any change will be made. With sovereign crisis in the European periphery persisting and global economic uncertainty intensifying, the ECB will most likely leave the main refinancing unchanged at 1.5%. We expect the statement language will be changed to a neutral tone from reinforcing strong vigilance on inflation as price pressures have moderated due to downside risks to growth. The BOE continued to be torn between dismal growth and elevated inflation. While we expect the Bank rate will stay at 1% and the asset purchase program will remain at 200B pound, the may be more discussions on easing policies. In August, Spencer Dale and Martin Weale stopped pushing for a rate hike and Adam Posen was the only member voting for additional asset purchases.

The DOE/EIA's inventory report will probably show that crude stockpile fell -2.00 mmb in the week ended September 2. For oil products, gasoline inventory might have dropped -1.40 mmb while distillate gained +0.50 mmb. The industry-sponsored API reported a -2.97 mmb draw in crude stock for the week. Gasoline stockpile slipped -0.87 mmb while distillate assed +3.95 mmb.

Weekly change in inventory as of 03/09/11 ChangeConsensusPrevious
Crude oil  -2.00 mmb+5.28 mmb
Gasoline  -1.40 mmb-2.80 mmb
Distillate  +0.50 mmb+0.36 mmb

Comparison between API and EIA reports:

      

  API (Sep 3)   EIA (Sep 3) 
 ActualInventoryPrevious Forecast (using API's inventory level)Inventory
Crude oil-2.97 mmb349.21 mmb+5.13 mmb -7.85 mmb349 mmb
Gasoline-0.87 mmb209.93 mmb-3.11 mmb +1.29 mmb210 mmb
Distillate+3.95 mmb157.06 mmb+0.28 mmb +1.00 mmb157 mmb

      

API collects stockpile information on a voluntary basis from operators of refineries. Data from the API and DOE have moved in the same direction 71% of the time over the past 52 weeks

Source: Bloomberg, API, EIA