Consumer Sentiment Dismal, US$ and US Treasuries Reaction A Head Fake

Today's consumer sentiment numbers offer immediate confirmation that the issues I raised in yesterday's post are clear and present dangers to the continued recovery of the debt and equity markets.

As of this post, equity markets are down about 1.5% across the board, which is not surprising.
However, the rally in the US$ and the US treasury market are in my estimation a head fake. The US$ has rallied a bit in the last week or so due to belief that a recovery will allow the Fed to shrink it's balance sheet. US treasuries have rallied because participants believe the economic recovery will pave the way for less stimulus and debt issuance.

Clearly, this sentiment data along with the dismal July retail sales data and awful initial jobless claims data paint an altogether more ominous picture. This picture does not bode well for the US$ or the Treasury market.

ECONX Some Sobering Sentiment Data
The preliminary report on consumer sentiment for August from the University of Michigan caught the market by surprise and not in a good way. The index dipped to 63.2 from 66.0 in July. The consensus estimate was 69.0. The current conditions index dropped to 64.9 from 70.5.

The August reading here is unsettling considering it is below the level seen in February when the stock market was much lower and the unemployment rate wasn't as high. The economic outlook index fell to 62.1 from 63.2. That is the lowest reading since March when this category measured 53.5...

Ultimately, it is income that drives spending, but the weak confidence measure is a sobering reminder of the psychological (and real) effects of a weak labor market that has been accented by a growing mass of workers (1 out of every 3 unemployed) that has been unemployed for 27 weeks or longer. The economic data overall might suggest in the months ahead that the recession is over, but this confidence report goes to show it will feel like a recession for a lot of people a lot longer than some production data says it should.