Today's Tidbits

Chinese Growth Accelerating
From JP Morgan: “China’s economy boomed in 2Q and the June activity indicators suggest that the economy had strong momentum heading into the current quarter...The quarterly advance in real GDP, estimated by us to be 15.9% (q/q, saar), was the strongest since the early 1990s, with the exception of the 3Q03 increase that followed the SARS crisis…we estimate that China’s manufacturing output advanced at a 29% annual rate in 2Q, the fastest of the 2000s expansion.”
From Merrill Lynch: “China's surging growth is actually leading to growing "hard landing" concerns - real GDP expanded 11.9% y/y in 2Q on top of the 11% pace in the first quarter and inflation jumped to 4.4% (from 3.4% in May). Even non-food prices are now up 1.2% y/y. Fixed asset investment (FAI) also came in above market expectations, at 26.7% YoY for 1H07, up from 25.9% for January-May. This suggests that FAI rose 28.5% YoY in June alone. Finally, retail sales came in above market expectations, at 16.0% YoY in June, up from 15.9% YoY in May. We should add that Hong Kong's unemployment rate dropped to a 9-year low in June to 4.2% (down from 8.6% just four years ago). Bottom line is that the Chinese economy is starting to overheat and more aggressive tightening measures that will have to include more meaningful currency appreciation are likely in store - negative for the dollar; good for gold.”

MISC
From Morgan Stanley: “The Biggest Dollar Diversifiers Are American. US real money managers, not Asian central banks, are the biggest dollar diversifiers and have been steadily diversifying out of the US since 2003. I calculate that cumulative outflows may have totaled US$1.16 trillion in the past four years. This may help explain the USD’s downward drift in recent years, and why it is so weak now.”

From The Financial Times: “…the $200bn figure President George W. Bush cited is for the “unified” deficit that incorporates the surplus on Social Security. Without this accounting gimmick (which the Bush administration did not invent) the projected 2007 deficit would be more than twice as large…US federal spending on Medicare, Medicaid and Social Security, now about 8.5 percent of GDP…If there is a shorter-term Achilles heel to US government deficit policies, it is dependence on foreign financing. The US is borrowing at the rate of $800bn a year, more than 6 percent of GDP. Incredibly, US borrowing accounts for roughly two-thirds of total new saving of all the world’s surplus countries.”

From Fortune: “…the American middle class isn't really shrinking, so much as it is anxious. The median household income for workers aged 25 to 60 is nearly $62,000. If both spouses work, it's close to $82,000…There's not a lot of security in a fast-paced global economy where workers get ahead by chasing opportunities (not obediently following office rules), by constantly reinventing their careers (not relying on seniority), by self-investing their savings (not counting on company pensions). In other words, in the new economy, we all have to be entrepreneurs with our own lives - with all the rewards and risks and, yes, anxieties that entails. … middle-aged men are staying at the same job nearly half as long as they were just 20 years ago, and more than 60 percent of workers report they've actually had to switch the type of work they are doing.”

From JP Morgan: “The minutes to the June 28 FOMC meeting reveal a committee that is more comfortable about growth, not terribly anxious about inflation, and unlikely to do anything anytime soon.”

From Bank of America: “The pace of business activity in the Philadelphia area moderated somewhat in July. After posting its highest reading since April 2005, the index fell 8.8 percentage points in July to 9.2. While the new orders index, a key component for future business activity, posted a decline in July, the shipments index registered a solid increase. Also noteworthy in today’s report was the increase in optimism about future business activity.”
From Bloomberg: “The index of leading U.S. economic indicators fell more than forecast last month, pulled down by a drop in building permits and an increase in jobless claims. The Conference Board's gauge declined 0.3 percent after increasing a revised 0.2 percent in May, the New York-based research group said today. The index points to the direction of the economy over the next three to six months.”
From JP Morgan: “Japan’s department store sales boomed in June.”

From Dow Jones: “Federal Reserve Bank of Chicago President Michael Moskow said … he wants a key inflation measure, the core personal consumption expenditures price index, rising between 1% to 2% compared with year-ago levels… “on a sustained basis” to determine inflation trends were in the right range. In May the core PCE price index dipped to a 1.9% annual advance, but the Fed, at its most recent policy meeting, said an improvement in inflation had yet to be “convincingly demonstrated.””

From Dow Jones: “Highly-rated doesn’t necessarily mean safe anymore. If the last week has shown investors anything, it’s that securities - whether they be mortgage bonds or the more opaque collateralized debt obligations - that carry the stellar AAA stamp are not immune to the subprime woes roiling financial markets.”
End-of-Day Market Update
Treasuries remained relatively range-bound with yields closing close to unchanged across the curve. But, the 2/10 curve flattened by a basis point as 30 year rates fell half a bp and two year yields rose just under a bp.
Equities recovered around the world, with the Dow rallying 82 points to close at another record high closing level of exactly 14,000. The S&P rose 7 to settle at 1553 (2pts below recent closing high), and Nasdaq rose 20.5 to close at a high for the year of 2720.
The dollar traded within a narrower range than yesterday, and is settling close to unchanged.
Oil is continuing to surge to new highs, rallying another 87 cents today to close just shy of $76 based on the NY WTI futures. The high for this contract was $80.76 in July 2006.