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from Global Investing:

Three snapshots for Monday

The yield on 10-year  U.S. Treasuries, fell to their lowest levels since early October today, breaking decisively below 1.80 percent. That compares to the dividend yield on the S&P 500 of 2.28%.

The European Central Bank kept its government bond-buy programme in hibernation for the ninth week in a row last week. The ECB may come under pressure to act as  yields on Spanish 10-year government bonds rose further above 6% today.

Output at factories in the euro zone unexpectedly fell in March, the latest in a series of disappointing numbers signalling that the bloc's recession may not be as mild as policymakers hope. On an annual basis, factory output dived 2.2 percent in March, the fourth consecutive monthly slide, Eurostat said, and only Germany, Slovenia and Slovakia were able to post growth in the month.

from MacroScope:

Baltic shipping index getting drier

An obscure gauge of shipping costs rose to prominence in geeky macro circles during the financial crisis because its plunge provided a telling lead on the economic crash that unfolded in 2008 and 2009. Now, the Baltic Dry Index has again taken a nosedive, falling to its lowest level in more than two decades.

This time, analysts are explaining it away as a reflection of an increased number of carriers at sea.

Julian Jessop at Capital Economics, acknowledges this has indeed been a big factor behind the index’s decline. Still, he suggests the magnitude of the drop should give forecasters some pause.

We think it would be wrong to dismiss entirely the warning signals that the sinking of the Baltic index is sending about the underlying demand for commodities and the health of the world economy more generally. If the BDI fails to rebound soon, now that the peak of the holiday season has passed, it may well be telling us something important about the health of the global economy after all.

from MacroScope:

Industry bounce soothes but does not cure

Phew. Industrial production rose 0.9% in July, the fastest in seven months. For the moment, that appeared to forestall fears that another U.S. recession  might be imminent, even if stocks were down on worries about weak economic growth in Germany. Harm Bandholz at Unicredit saw the figures as a bright spot:

Today’s report, in combination with the recent improvements in initial jobless claims and retail sales, corroborates our view that GDP growth in the second half of the year is likely to accelerate to (a still low) 2%-2¼% from less than 1% in the first half.

Economists at Credit Suisse were less sanguine:

The July industrial production performance is not consistent with recession.  But industrial production tells us where we are, not where we are going.

There are indications that the future may not be so bright, particularly given the uncertainty that reigned at the end of July and the start of August, as the U.S. flirted with default amid a heated political battle over the debt ceiling. The New York Fed's factory index for August showed a third month of contraction, while the Philly Fed's measure of Mid-Atlantic manufacturing, due out on Thursday, is forecast to have held steady at very low levels.

from Breakingviews:

Beijing’s great power comes with little foresight

Just two years after Beijing started throwing incentives at green technology manufacturers, it has now decided to starve them of financing. This stop-start approach shows that, while Beijing may have more levers at its disposal when stimulating industries, it also has a bigger risk of run-away supply growth.

On Monday, China launched the latest in a series of attempts to rein in industrial overcapacity to balance its economy and prevent investment from going to waste. Most of the sectors suffering from overcapacity are old-economy heavy industries like steel and cement. But Beijing's targets also include green industries such as polysilicon, used to make solar panels, and wind power equipment.

China's solar and wind industries are suffering from familiar problems: the existence of a large number of suppliers and weak demand. China is by far the world's largest producer of solar panels, accounting for more than 40 percent of global supply. China may have overestimated overseas demand, and is also having trouble boosting domestic use. The country only accounted for 1 percent of the global solar market in 2008.

As with countless other industries, China has shown how quickly it can expand when support exists. With the central government calling for a greener economy, banks have made new energy their preferred industry to lend to. Local governments have also been doing their job of reducing taxes and giving out cheap land to attract those producers.

Last year, China's polysilicon factories only used 20 percent of their capacity, but that did not prevent the country from expanding its current capacity another four times, according to official estimates. Just as the government used easy credit to lure investors into the business, now it is trying to rein in producers by restricting new investment and ordering banks not to finance new projects.

The legacy of its planned-economy mindset means China has consistently tried to use industrial polices to fine-tune the economy. But this does not necessarily mean it is any good at micro-managing supply and demand.

For example, in the late 1980s, Beijing restricted the development of small cars because it believed the transportation system would be overburdened when everyone started to drive. It lifted that ban five years later, and the thinking now is the auto industry is best at creating jobs. But Chinese automakers are playing catch-up with foreign rivals.