Good data suggests the Fed taper is almost nigh
Global stocks are up as economic data improves worldwide.
1) many European bourses are near 2-1/2 month highs, given a boost by strong economic figures. Germany's investor confidence (Zew Index) came in better than expected, and euro zone industrial production was up 0.7 percent, its fastest pace in nearly three years.
2) in the U.S., July retail sales were up 0.2 percent, a tad below expectations of a gain of 0.3 percent, but June was revised upward and "core" sales (ex-auto) were up 0.5 percent, the biggest gain since December.
This data supports the idea that a taper of bond purchases by the Federal Reserve in September is more likely than not. Those who believe that the Fed will wait until December to taper — which were a majority only a couple months ago— are now a minority. That may be why stocks sold off a bit on the news: this is the last gasp of those who are giving up on a delayed taper. Ten-year U.S. Treasury yields, which are a barometer of Fed expectations, moved up a touch to 2.69 percent.
Another positive data point: The Wall Street Journal reported late last night that U.S. government revenue from October to July this year was up over 14 percent from the same period a year ago. That is a big help for the deficit, which will likely be the narrowest in five years.
1) More news from the golden age of biology. The front page of the WSJ today, "Gene Breakthroughs Spark a Revolution in Cancer Treatment," highlights the tremendous growth in cancer treatment. The breakthrough comes from the ability to break down the genetic component of cancer cells, where it was discovered that a single type of cancer (in this case, lung cancer) is really several different types of cancer caused by different genetic mutations. New drugs can be targeted to attack those mutations.
You can see it this morning, where Eli Lilly is up two percent on its announcement that a lung cancer drug had a successful Phase III trial. The drug is designed to block the activation of a chemical chain that leads to cancer.
I've said this many times, I will say it again: if the 20th century was the golden age of physics, the 21st century is the golden age of biology. We may not be on the verge of a cancer 'cure," but we are on the verge of a tidal wave of drugs that will make it a far less fatal disease.
Many biotech companies are going public, and it's a bit different this time: many of these small companies have the backing of larger companies or big investors behind them. That's a reflection of the improved technology.
2) If you think the planned increase in the sales tax in Japan from 5 to 10 percent is not an issue, think again. Japanese stocks jumped 2.6 percent on reports that Prime Minister Shinzo Abe was considering a cut in the corporate tax to counter the proposed sales tax increase. The sales tax increase, touted as a way to offset the huge increase in bond buying, is a bad idea. A similar move a few years ago derailed Japan's economic recovery.
3) YUM Brands said same store sales in China were down 13 percent in July, worse than expected, but may be temporary, as it was likely due to bad publicity from a chicken supplier quality issues. You can see that if you break down the numbers: Pizza Hut sales were up three percent, while KFC was down 16 percent.
Analyst estimate are clearly too high: today Deutsche Bank, Wells Fargo, and others took down 2013 earnings estimates.
This problem extends beyond YUM: McDonald's does not break out same store sales for China, did note in its July same store sales report that China was negative as well.
—By CNBC's Bob Pisani