Tag Archives: Output

U.S. and Eur Data/GDP Downgrades

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Karim writes:

U.S. data on the soft side (October)

  • Most notable is core durable goods orders (capex has been gwth leader of late) falling 1.8% and 3mth annual rate slowing to 4% from 7.3%
  • Core shipments (more important for current quarter growth) down 1.1%
  • Personal spending up 0.1%.
  • Personal income up 0.4% (mostly via wages) and savings rate up from 3.3% to 3.5%
  • Headline Price index-0.1% and core unchanged, so reasonable increase in real incomes. Core PCE Index now 1.5% 3mth annualized vs 2% last month

EUR Composite PMI ‘surprises’ to upside in November, rising from 46.5 to 47.2

  • Interesting that manufacturing (more volatile and more of a leading indicator) much weaker than services.
  • Also, German new orders fall 2.6pts to 42.6

Q4 GDP estimates in U.S. being shaved 0.25-0.50% on the data. Current range 2.5-3.25%.
Failure to extend payroll tax cut would have impact almost entirely in Q1 2012 (annual withholding ceilings typically reached early in the year)-about 1% on GDP.

European estimates are about -1.5% annualized for both Q4 and Q1. Germany among the weakest (due to manufacturing) with estimates in the -2.5% area.

PMI data in Europe has had a very good track record signaling ECB policy rate changes. This data pretty much cements another rate cut next month.

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News recap comments

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The news flow from last week was so voluminous it was nearly impossible to process. For good measure I want to start today’s commentary with a simple recap of what happened.

On the negative side –

· Greece called a referendum and threw bailout plans up in the air taking Greek 2yrs from 70% to 90% or +2000bps.
· Italian 10yr debt collapsed 40bps with spreads to Germany out 70bps. The moves were far larger in the 2yr sector.
· France 10y debt widened 25bps to Germany. At one point spreads were almost 40 wider.
· Italian PMI and Spanish employment data were miserable.
· German factory orders plunged 4.3 percent on the month.
· The planned EFSF bond for 3bio was pulled.
· Itraxx financials were +34 while subs were +45.
· Draghi predicted a recession for Europe along with disinflation.
· The G20 was flop – there was no agreement on IMF involvement in Europe.
· The US super committee deadline is 17 days away with no clear agreement.
· The 8th largest US bankruptcy in history took place.
· US 10yr and 30yr rallied 28bps, Spoos were -2.5%, the Dax was -6% and EURUSD was -3%.
· German CDS was up 16bps on the week.

On the positive side –

· The Fed showed its hand with tightening dissents now gone and an easing dissent in place.

Too bad what they call ‘easing’ at best has been shown to do nothing.

· The Fed’s significant downside risk language remained intact.

Downside risks sound like bad news to me.

· In the press conference Ben teed up QE3 in MBS space.

Which at best have been shown to do little or nothing for the macro economy.

· US payrolls, claims, vehicle sales and productivity came in better than expected.

And the real output gap if anything widened.

· S&P earnings are coming in at +18% y/y with implied corporate profits at +23 percent q/q a.r.

Reinforces the notion that it’s a good for stocks, bad for people economy.

· Mortgage speeds were much faster than expectations suggesting some easing refi pressures.

And savers holding those securities saw their incomes cut faster than expected.

· The ECB cut 25bps and indicated a dovish forward looking stance.

Which reduced euro interest income for the non govt sectors

· CME Margins were reduced.

Just means volatility was down some.

· There was a massive USDJPY intervention which may be a precursor to a Swiss style Japanese policy easing.

Which, for the US, means reduced costs of imports from Japan, which works against US exports, which should be a good thing for the US as it means for the size govt we have, taxes could be lowered to sustain demand, but becomes a bad thing as our leadership believes the US Federal deficit to be too large and so instead we get higher unemployment.

· The Swiss have indicated they want an even weaker CHF – possibly EURCHF 1.40.

When this makes a list of ‘positives’ you know the positives are pretty sorry

· The Aussies cut rates 25bps

Cutting net interest income for the economy.

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