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One Minute Macro Update

Submitted by Tyler Durden on 12/20/2010 08:51 -0400

US: Futures are in positive territory in the early AM to begin a truncated holiday week that features November durable goods and PCE data. Last week saw retail sales print the strongest levels in three years, a strong Empire Manufacturing print, a strong Philly Fed print, and a benign Fed statement. In the US and Europe, risk assets outperformed as allocators favor clean corporate balance sheets over messy sovereign ones. The relatively quiet week will most likely be dominated by sovereign news in our opinion – as well as a rising worry about munis. For those prognosticating the end of QE, we point to the muni problems, which will likely require some form of QE, fiscal stimulus, or other plan in order to stave off negative economic consequences for growth in 2011.

Europe: Despite the rumor mill regarding ECB purchases in early December, the ECB announced only €2.67B in bond purchases during the first week of December – well below the levels of purchases seen in the May/June pre-bank stress crisis earlier in the year. Amid downgrades and threats of downgrades last week, Spain issued 10Y and 15Y debt and is set to auction 3M and 6M bills this week. EURIBOR—OIS remains at an elevated high-30bp range reached last week.

Asia: PBOC officials stating that a rate hike could hamper an economic soft landing, making it appear as if required reserve ratio hikes are the primary tool for policymakers in the near term. Raising rates would impact many of the lending activities undertaken by the Chinese banking system over the past few years – a key driver of growth in our opinion – and might hasten a gradual exhalation into a bursting bubble.

Via Brian Yelvington of Knight Capital