Following today's two better than expected employment data points, it was only natural that the world's fastest revising bank would go ahead and promptly revise their forecast for tomorrow's NFP higher. Sure enough... "We are upgrading our forecast for tomorrow’s nonfarm payroll report to +125k, from +75k previously."
Happy 4th. Big fireworks coming....
With the US closed, the afternoon simply dragged on with a light ROff feeling as the Periphery drifted slowly wider, France on stand-still and the Core squeezed tighter. Credit weaker with Financials giving back yesterday’s gains and more. Sudden change of mind in equities, paring morning losses loss ahead of tomorrow in very low volume.
Nothing strong, nor concrete, nor very firm, but Core EZ unease with the ESM discussions of last week, as seen by the South, is just seeping through. Opposition parties, Central Bankers, junior government partners, constitutional issues in the Northern part all seem via titbits and comments ready to sand in some of the discussions or to delay the processes. Give it another 2 weeks and everyone will have gone on holiday (despite the ECOFIN claiming to remain on stand-by).
Closing in unconvinced ROff mode and treading water ahead of tomorrow’s Spanish auction, ECB / BOE meetings and US claims numbers. EUR ticking down to low 25s Yet another not especially inspirational day to write about. Libor-gate turning into mudslinging contest, with possible further fall-outs on the industry.
Potential employers have to respond to the incentives and disincentives that exist in today's world, and those do not favor conventional permanent employees. We know you're hard-working, motivated, tech-savvy and willing to learn. The reason we can't hire you has nothing to do with your work ethic or skills; it's the high-cost of the Status Quo, and the many perverse consequences of maintaining a failing Status Quo. The sad truth is that it's costly and risky to hire anyone to do anything, and "bankable projects" that might generate profit/require more labor are few and far between. The economy is different now, and wishing it were unchanged from 30 years ago won't reverse the clock. We have to respond to the incentives and disincentives that exist in today's world, and those do not favor conventional permanent employees except in sectors that are largely walled off from the market economy: government, healthcare, etc. But these moated sectors cannot remain isolated from the deflationary market economy forever.
Closing in unconvinced ROn mode. European equities taking their final lead from US peers. Peripherals pushing just the last basis points tighter. Note that these curves are finally steepening through renewed short end strength with both 2-3 YRS area down 20bp on the day. On the other hand, Core EGBs have not been driven into the wall, as one could have expected in full ROn modus. German 2 / 5 / 10s about unchanged from Friday.
Tug of war between wary optimists and tired pessimists? Glass half full or empty? Dusty diamonds, anyone?
Not a highly inspirational day to write about. Reduced volatility and very range-bound. Lack of real news flow. Action more in the financial people press, as it stands. And in EUR New Issues, as borrowers have come to learn that windows of opportunity, when seeing one, should be used. Knowing, too, that new issues will grind to an end probably as of the end of next week. Hence, EUR 7.5bn senior bank debt served in 2 days. Ce qui est pris n’est plus à prendre…
Objective analysis, or media spin to gauge popular reaction to Plan Z? Whatever it is, today's staff lead article in the English section of Spiegel has a piece that will likely raise more than a few eyebrows: "The common currency union was supposed to benefit the economy of the entire European Union. Now that the euro is struggling, however, it is bringing growth down with it. Germany's economy, once seemingly immune to the crisis, is now facing mounting difficulties."
- The next Enron: JPMorgan at centre of power market probe (FT)
- Former Brokers Say JPMorgan Favored Selling Bank’s Own Funds Over Others (NYT)
- Ex-JPMorgan Trader Feldstein Biggest Winner Betting Against Bank (Bloomberg)
- Finland Firm On Collateral As Spain Aid Terms Discussed (Bloomberg)
- Heatwave threatens US grain harvest (FT)
- Wall Street Is Still Giving to President (WSJ)
- Greenberg Suit Against U.S. Over AIG To Proceed In Court (Bloomberg)
- Crisis forces "dismal science" to get real (Reuters)
- Hope continues to be as a strategy: Asia Stocks Rise On Expectation Of Monetary Policy Easing (Bloomberg)
While conflicts within and with the Middle East region are still among the top global risks, the paradigm has definitively shifted to China and Europe.
Given Friday’s announcements and subsequent rally, the relative dearth of weekend snippets and analyses seems a little surprising.
Despite the July 4th mid-week holiday, the coming week will be packed with major economic updates. Goldman Sachs summarizes what to look for in the next 5 days.
- The Real Victor in Brussels Was Merkel (FT)
- German Dominance in Doubt after Summit Defeat (Spiegel)
- Euro defeat for Merkel? Only time will tell (Reuters)
- The Twilight Zone has nothing on Europe: European Banks Bolster Capital With Shunned Bonds (Bloomberg)
- Krugman is baaaaaack and demands even more debt: Europe’s Great Illusion (NYT)
- Republicans See Way to Repeal Obamacare (FT)
- Hollande Ready to Tackle Public Finances (FT)
- China’s Manufacturing Growth Weakens as New Orders Drop (Bloomberg)
- Protesters March in Hong Kong as Leung Vows to Fight Poverty (Bloomberg)
While Belgian caterers are delighted that Europe's increasingly more unelected leaders quarrel endlessly over who gets to foot the bill to keep the market fooled for one more week that things are fixed, Europe is burning. The just released MarkIt PMI data showed that while Spanish bonds may be up 50 bps one day, down 75 bps the next, "the downturn in the Eurozone manufacturing sector extended to an eleventh successive month. Production and new orders suffered further severe contractions, leading to the steepest job losses since January 2010." And here is where Germany, which as noted earlier, is becoming isolated in its European bailout ambitions, should pay attention: "The rate of decline in Germany was the steepest for three years, and marked a fourth successive monthly decline in the region’s largest economy." This metric is only going to get worse, only in the future it will be coupled with increasingly more direct and contingent debt all around. And further confirming that there is no easy way out for Europe was the May Eurozone unemployment number which at 11.1% rose to a new record
From what seemed like a very low bar on expectations, last week's summit headlines surprised modestly on the upside, even if the details remain far from clear - and implementation even murkier. Political talk of wanting to break the link between sovereign and banking risk was well-received by markets - but we remind all that talk-is-cheap with these Euro-pols. As Goldman noted this weekend, "we do not see the outcome as a game changer", rather can-kicking until one of four possible endgames are realized. The absence of any explicit commitment to plans for fiscal or political integration; the lack of reference to any pan-European deposit insurance; and Ms. Merkel's limited concessions (to ensure passage of the growth compact) to the terms on which the existing pool of EFSF/ESM resources are offered leaves the underlying issue - the terms on which mutualisation of financial risk is offered by Germany in return for mutualization of control over fiscal decisions throughout the Euro area - remaining inharmonious. German tactical concessions at the summit do not change their basic position on this issue: that discipline, reform and consolidation must be achieved and cemented first before mutualization of financial obligations is possible. Looking to the future Goldman sees four paths for the Euro are from here - and short-term too many crucial issues are left unresolved.
I’ll be the first to admit the incredible aggravation I feel whenever liberty is trampled upon by the state’s obedient minions. Everywhere you look, government has its gun cocked back and ready to fire at any deviation from its violently imposed rules of order. A four year old can’t even open a lemonade stand without first bowing down and receiving a permit from bureaucrats obsessed with micromanaging private life. The state’s stranglehold on freedom is as horrendous as it is disheartening. The worst part is that the trend shows no signs of slowing down, let alone reversing. Politicians are always developing some harebrained scheme to mold society in such a way to circumvent the individual in favor of total dictation. If it isn’t politicians, then it’s an army of unelected bureaucrats acting as mini-dictators.