IG On-the-run Spreads
IG6 Spreads
IG7 Spreads
IG8 Spreads
IG9 Spreads
Slowly drifting higher, but well below previous crisis levels.
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Author Archives: WARREN MOSLER
Reuters: Machine tool orders
US April machine tool demand down from March
by Ayesha Rascoe
(Reuters) Demand for the machine tools that shape metal for products such as car engines and refrigerators dropped sharply in April, two groups said in a joint report on Sunday.
U.S. April machine tool demand declined 27.6 percent to $396.47 million from $547.81 million in March, the American Machine Tool Distributors’ Association (AMTDA) and the Association for Manufacturing Technology (AMT) said.
Demand grew 29.2 percent from $306.86 million a year earlier in April 2007.
Exports continue to boom as this very volatile series suggests.
US Exports YoY
March demand was revised upward from $544.62 million reported a month ago.
In the first four months of 2008, demand for machine tools, which gives a sense of the pace of manufacturing, stood at $1.587 billion, up 19.9 percent from $1.324 billion in the same 2007 period.
“Export demand for U.S. manufactured products and the global boom in infrastructure development continues to fuel the surprising growth in capital equipment investment,” said AMT President John Byrd in a statement. “The decline from March to April is not surprising, considering the extraordinary results posted in March.”
Demand for machine tools dropped throughout the country in April. In the South, demand fell 59.8 percent, while demand decreased 35.2 percent in the Northeast and 31.7 percent in the Central United States.
Demand also dipped 10.4 percent in the Midwest. In the West, however, demand rose 3.4 percent.
The machine tools report is generally based on a survey of about 200 manufacturers, distributors and importers of machine tools that represent 76 percent of the machine tool market.
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Re: Korea
(an interoffice email)
>
> On Mon, Jun 9, 2008 at 5:05 AM, Sean wrote:
>
> Today Korea announced a plan to spend $10bb to counter the effects of
> rising oil prices. The $100bb will include tax rebates and subsidizing
> power providers. This is with GDP growing at 5.8% ( although expected
> to slow to the mid 4% range and CPI at 4.9% – the package is expected
> to add 0.2% to GDP.
>
> There is no political will in Asia to avoid measures that sustain demand
> for energy related products – subsidy cuts have been very small and the
> outcry loud enough to prevent further meaningful cuts. Inflation is
> ripping in Asia, the second round effects are unavoidable and its going
> to be imported to the US.
>
>
Thanks, looks like Japan cpi break evens have a long way to go!
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Consumer credit chart
Consumer Credit
Moving up some, supporting spending at muddle through ‘better than recession’ levels, but not a bubble yet, as happened at the turn of the century.
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2008-06-06 Economic Releases
- Change in Nonfarm Payrolls (Released 8:30 EST)
- Unemployment Rate (Released 8:30 EST)
- Unemployment Rate ALLX (Released 8:30 EST)
- Change in Manufacturing Payrolls (Released 8:30 EST)
- Average Hourly Earnings MoM (Released 8:30 EST)
- Average Hourly Earnings YoY (Released 8:30 EST)
- Average Weekly Hours (Released 8:30 EST)
- Wholesale Inventories MoM (Released 10:00 EST)
- Wholesale Inventories YoY (Released 10:00 EST)
- Consumer Credit (Released 15:00 EST)
Change in Nonfarm Payrolls (May)
| Survey | -60K |
| Actual | -49K |
| Prior | -20K |
| Revised | -28K |
Down 49,000 was better than expected.
Previous months revised down an additional total of 15,000.
Unemployment Rate (May)
| Survey | 5.1% |
| Actual | 5.5% |
| Prior | 5.0% |
| Revised | n/a |
Unemployment Rate ALLX
Total employment is over 138 million, and the seasonal adjustment dropped the actual number by over 1.5 million jobs.
So this report is fighting strong seasonal adjustments.
5.5% unemployment from the household survey is a lot worse than expected.
Seems 500,000 new job seekers entered the labor force in that survey, apparently a statistical quirk added that many teenagers and 20-24 year olds out of sync with seasonal adjustments.
Even so, the labor markets remain on the weak side.
But they are strong enough to support crude at $131.72 (as Saudi oil production continues to grow at even these higher prices and headline inflation) is well north of 4%, as the May CPI is expected to show.
Employment is also strong enough to yield positive GDP growth – no recession yet.
Change in Manufacturing Payrolls (May)
| Survey | -40K |
| Actual | -26K |
| Prior | -46K |
| Revised | -49 |
Better than expected, in line with other recent report.
Average Hourly Earnings MoM (May)
| Survey | 0.2% |
| Actual | 0.3% |
| Prior | 0.1% |
| Revised | n/a |
A touch higher than expected, but not that bad.
Average Hourly Earnings YoY (May)
| Survey | 3.4% |
| Actual | 3.5% |
| Prior | 3.4% |
| Revised | 3.5% |
Also a bit higher than expected, but still not moving higher.
‘Wage inflation’ is not the issue, nor is it necessary condition for problematic inflation, especially in an export economy.
Average Weekly Hours (May)
| Survey | 33.7 |
| Actual | 33.7 |
| Prior | 33.7 |
| Revised | n/a |
Holding steady.
Wholesale Inventories MoM (April)
| Survey | 0.4% |
| Actual | 1.3% |
| Prior | -0.1% |
| Revised | 0.1% |
Higher than expected, but not at recession levels yet.
Wholesale Inventories YoY (April)
| Survey | n/a |
| Actual | 8.1% |
| Prior | 7.0% |
| Revised | n/a |
Higher than expected, but still not all that high.
Consumer Credit (April)
| Survey | $7.2B |
| Actual | $8.9B |
| Prior | $15.3B |
| Revised | $13.1B |
This month a bit better than expected, last month revised down a bit. Consumer credit seems to be chugging along at better than recession levels.
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May 2008 Saudi oil output up
Saudi Oil Production
This does not bode well for oil prices.
Increased Saudi output means demand has increased at current prices, and the Saudis (and Russians, etc.) remain firmly positioned as ‘price setter’.
The Saudis continue to have the only excess supply, with about 1.5 million bpd excess capacity.
The Mike Masters sell off seems to be over. Actual legislative effort could cause a subsequent temporary sell off but will not dislodge the Saudis from total control.
The only thing that can dislodge their ability to set price is a net supply response in excess of 5 million bpd, which is highly unlikely in the near future.
Any efforts to increase aggregate demand to support growth will also function to support prices.
My twin themes remain:
- Weakness (low domestic demand supported by exports) as GDP muddles through. No recession yet, but could happen down the road should exports falter.
- Higher prices as Saudis remain as price setter, continuously hiking prices, and inflation continues to march higher, and our real terms of trade and standard of living continues to deteriorate.
‘Solutions’ remain:
- pluggable hybrids – this switches demand from crude to coal, and dislodges the Saudis from being price setter.
- dropping the national speed limit to 30 mph for private ground transportation. (Just heard JKG dropped the national limit to 35 mph during WWII)
Biofuels continue to link crude to food, and the political response to food shortages and markets allocating life by price is likely to continue to be ‘cash’ payments regardless of inflationary consequences. The body count is likely to exceed that of WWII over the next few years and is probably already in the millions.
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Watch for foreign USD borrowings
It’s about that time of the cycle when emerging market governments borrow low interest USD rather than pay the higher interest rates of their local currency.
Makes no sense at the macro level by often the treasuries of these nations are incented to do this.
This external, USD debt tends to drive the USD down and add to US exports, as it adds to international financial instability.
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Blood flowing around the clot
2008-06-05 C&I Loans Outstanding 5yrs back
2008-06-05 Commercial Paper Outstanding SA 5yrs back
Seems banks have taken up much of the slack from the commercial paper markets, but at wider spreads.
Bodes well for bank earnings while it lasts, as the real economy manages to chug along, led by exports.
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Bloomberg: Russian control of energy to Eurozone
Medvedev May Seek to Assure Merkel on Russian Energy Supplies
by Lyubov Pronina and Brian Parkin
(Bloomberg) Russian President Dmitry Medvedev may seek to assure Europe of Russia’s reliability as an energy supplier and allay German Chancellor Angela Merkel‘s human- rights concerns in a one-day visit to Berlin today.
Medvedev will meet Merkel and President Horst Kohler and address about 1,000 business executives and lawmakers in his first trip to Western Europe as Russia’s leader.
“Energy will be at the forefront of talks and they won’t be easy,” Yevgeny Volk, a Moscow-based analyst for the Heritage Foundation, a U.S. research group, said in a telephone interview. “Russia wants to increase its energy influence in Europe, while Western countries would like to get more guarantees from Russia that deliveries will not fail.”
Note there is no discussion about price. The euro negotiators want to ensure deliveries with an agreement that is necessarily unenforceable in any case. Russia does have 25,000 nuclear weapons, for example.
Russia, which supplies 25 percent of Europe’s energy, has clashed with Europe over concerns that it abuses its role as Europe’s main energy source to further its political agenda. It opposes further eastward expansion of the North Atlantic Treaty Organization, U.S. plans for a missile-defense shield in Europe and Kosovo’s secession from Serbia.
Looks to me that Russia is in full control, and is using its position to enhance its real terms of trade, something never even mentioned by the Eurozone.
Germany and the European Union have pressed for guarantees that Russia will follow a uniform policy for supplying oil and gas across the bloc, weakening its capacity to wield energy policy as an arm of diplomacy. Russia briefly cut off gas to Ukraine in 2006 in a pricing dispute.
As if quantity ‘guarantees’ would ‘weaken’ anything. Apart from being unenforceable, it all misses the point of price and relative value.
Good luck to the Eurozone!!!
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2008-06-05 EU News Highlights
Highlights:
| France’s Unemployment Rate Drops to 7.5%, Insee Says |
Scary low rate for the ECB.
| German 2008 Tax Revenue to Grow More Than Expected |
Fuel for the hawks, Germany’s unemployment is too low for them as well.
| ECB May Keep Benchmark Rate at Six-Year High |
For sure. And there will be discussion of hikes.
| Spain April Industrial Production Contracts on Euro’s Advance |
The ECB wants this kind of slack, but still not enough for them.
| OECD Official Urges Fed, ECB to Put Rates on Hold |
Yes, as they sure aren’t going to cut as Bernanke originally hoped.
They never bit on his bait to start an international race to the bottom with rate cuts/inflation.
The Fed thought the rising euro and the loss of demand to the US, as US exports rose, would cause the ECB to blink and cut rates.
Instead, the falling dollar and ripping US inflation has caused the Fed to start talking about hikes.
In the mainstream paradigm, the ECB was right in not cutting while the Fed is coming under fire for cutting aggressively into a triple negative supply shock, letting inflation expectations start to elevate, and risking a much larger slowdown bringing inflation down from much higher levels.
| European Bonds Fall on Speculation ECB to Highlight Inflation |
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