G3 Recap 12-15-10

Main Items:

  • US Core CPI increased to 0.8% YoY in Nov vs 0.6% expected and previously. However, the change was entirely due to baseline effects, as the MoM print came in at 0.1% as expected. Also, OER rose 0.1% MoM, which is expected to ease worries of a continued drop in core CPI. Headline inflation declined even further – to 1.1% YoY as expected vs 1.2% previously.
  • Empire Manufacturing Index improved to 10.57 in Dec vs 5.0 expected and an anomalous -11.14 previously
  • Moody’s placed Spain’s debt on review for a possible downgrade, but did note that it doesn’t see the country needing an Irish style bailout. (Moody’s has its Spain rating a notch higher than the other agencies.)
  • Chinese policymakers are examining bank lending targets for next year that will equal or even exceed their 2010 quota, in spite of fears about overheating amid the highest inflation in the country in more than two years – FT.


  • UK CBI Reported Sales improved to 56 in Dec vs 38 expected and 43 previously. This is now the highest print since April 2002, which was the all time high. However, this series is at odds vs the retail sales data – possibly due to consumers shifting purchases forward ahead of the VAT hike.
  • UK Jobless Claims declined 1.2k in Nov vs -3k expected. This kept the Claimant count rate unchanged as expected
  • Australia Westpac Consumer Confidence was basically unchanged at 111 in Dec
  • Chinese FDI growth jumped to 38.2% YoY in Nov vs 10.8% expected and 7.9% previously
  • South Korea Unemployment dropped to 3.2% in Nov vs 3.6% expected and previously


  • The spread between the 10y yield and core inflation is now 260bps (280 if you adjust for the fact that today’s YoY increase was due to baseline effects). Historically, these are levels where 10y yields have peaked this decade:

    Furthermore, the last time core inflation was at these levels was in the early 60’s. 30yr AAA corporates yielded about 4.40% back then, vs 4.90% now. (Note that this isn’t an apples to apples comparison because government interest rates were not liberalized in the US and the Fed subservient to the Treasury until the 50’s. For the nerds like myself who enjoys reading monetary history, this paper from the Richmond Fed is quite interesting, especially when read in contrast to current conditions)