G3 Recap 2-28-11

Main Items:

  • US Core PCE rose to 0.8% YoY in Jan as expected and 0.7% previously.
  • Chicago PMI improved to 71.2 in Feb vs 67.5 expected and 68.8 previously. This was a 22 year high.
  • US Personal Income rose 1.0% MoM in Jan vs 0.4% expected, but Personal Spending rose just 0.2% vs 0.4% expected. As with all January data, weather disclaimers apply.
  • Canadian GDP rose 3.2% YoY in Dec vs 2.8% expected and 3.0% previously
  • The opposition in Libya allows oil shipments to commence. A tanker carrying 700K barrels of crude departed Libya Sunday night bound for China. This marks the first crude shipment from the eastern territory of the country in more than a week. WSJ
  • HSBC posted $13.2bn in net income, missing $13.7bn expectations. They cited an “unacceptable” increase in costs and they have reduced their profit forecasts.

Overseas Data:

  • EU CPI rose 2.3% YoY in Jan vs 2.4% expected and previously. The Core measure was unchanged at 1.1% vs 1.2% expected.


  • Month end flows are likely ‘distorting’ some of the price action. However, any pause in the sell off of risky assets is a positive. Certainly the two consecutive positive closes ahead of month end is a good setup and suggest that the panic selling is now over.

4 thoughts on “G3 Recap 2-28-11

  1. I am curious as to your thoughts on global growth with Brent at these levels … if these levels are sustained, I think everything could get messy.

    Also, do you ever look at Brazilian rates? – wondering your view to receive, maybe ’13

    Thanks for blogging.

    your ba vs ed call looks very good, btw.

    1. Hey qeqe –
      I don’t have much to add beyond what the street’s put out. I think GS projects no more than a -50bp impact on US GDP over the next couple quarters. I don’t have the time or expertise to look at all the linkages, so I’ve just eyeballed the chart of the 2y log change in oil vs US PMI (see 2/22 post) and it’s suggesting that we’re in the danger zone, but the risk is probably still a ways off. Moreover, oil needs to continue appreciating at its recent pace in order to continue to have an impact on growth. So we probably have a bit of a cushion, at least for now.

      The impact of higher oil on EM is much worse, as you know, but I haven’t done the math in terms of the impact. I suspect, however, that the exact results probably wouldn’t matter too much – EM CB tightening will exacerbate the negative impacts on growth, and is likely more important than the rise in oil prices in and of itself. If this hypothesis is correct, then I think we will need to see average EM CB rates roughly back to their 2007 levels before a recession is in the cards.

      I haven’t done much work on Brazil, but given the impact of oil, my only suggestion is to be aware that it could trend and make sure you manage your risks.

    2. might help you out:


      model and charts very pertinent though i disagree with conclusion that more QE required to offset slower growth (cause i am stubborn amongst other variables) … more QE will just drive up commodities further so only solution in short run is positive oil supply shock … which is why bahrain so crucial to watch as swing factor is saudi (despite canada being biggest supplier to USA)

      1. Thanks Bert. I think 20bps in 4 quarters is what GS came up with as well, but GS had -40bps after 8 quarters.

        Assuming 2.5% trend growth, and his model forecast of 3.7% growth for 2011, US employment will fall as long as commodity prices rise less than 8% * (3.7-2.5) / 0.17 = 56.5%. GSCI spot is up 45% from the beginning of June, or 66% annualized.

        This presupposes that commodity prices continue to rise, however. But it can easily morph into a serious growth scare. Yikes

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