G3 Recap 5-6-11

Main Items:

  • Payrolls rose 244k in April vs 185k expected and 216k previously. However, the UE rate increased to 9.0% vs 8.8% expected and previously. Participation rate was unchanged, so it appears that UE is correcting . Hourly earnings rose 0.1% MoM vs 0.2% expected, but the prior month’s print was revised higher by 0.2%.
  • Canadian Employment improved 58.3 k in April vs 20k expected and -1.5k previously. This took the UE rate down to 7.6% vs 7.7% expected and previously.
  • Unilever – China will fine the company Yuan2M ($308K) for telling the media about its plans to raise prices, which the government said led to hoarding. Bloomberg
  • Der Spiegel reported that Greece wants out of the EUR. A German Coalition source confirmed to the media that there is a crisis meeting in Luxembourg which includes Finance Minister Schauble.


  • UK PPI Output Corse rose 3.4% YoY in April vs 3.0% expected and previously.
  • Swiss UE declined to 3.1% in April vs 3.2% expected and 3.3% previously.


  • Going into today, stocks were short term very oversold. Then we had a great payrolls number. Stocks should have rallied. Instead futures closed down on the day. This suggests that we are likely to see lower prices next week.
  • Greece has enough money to last until March 2012, when a chunky 14.5bn government bond issue matures. That Greece is proposing leaving the EUR now suggests that they are going to try to force through some additional financing or financing concessions from the EU/IMF. An actual Greek break from the Euro is bad for everybody – but especially for Greece, given that: (a ‘break’ assumes that Greece is not able to redenominated its liabilities into Drachma) the country see its purchasing power immediately drop by a large amount, all Greek banks will immediately become insolvent, and the Greek government will immediately run out of money given the fact that it is running a 10% budget deficit and the resulting immediate recession.
    In fact, the economically optimal strategy for Greece is straight forward. Since its debt load is unsustainable without a default or restructuring of some kind, to maximize short term economic welfare, Greece should attempt to borrow as much money as possible from its creditors before defaulting. In any case, despite the headlines, an actual Greek default/restructuring/break from the Euro does not appear economically optimal until financing runs out in 2012.


4 thoughts on “G3 Recap 5-6-11

    1. Hi Corelio – yes, I think you are right over the short term. However, one difference that may throw off a direct comparison is that both entities require each others’ cooperation and potentially goodwill over the long run. Since the prisoner’s dilemma appears to assume that there are no ‘reputation’ effects for either prisoner to cooperate with the police, using that game as a guide may require a bit more nuance.
      In any case, both entities appear to concur that cooperation maximizes welfare for now, (although I am not yet sure the EU’s view is correct) and so, at least in this case, the prisoner’s dilemma lessons hold.

    1. Hey Bert – thanks for sending that. I had no idea inventories were so high. I also found it a bit odd that the FT writer thinks QE has a bigger effect on Lead prices than the multi-sigma high levels of inventory.

      I think you could be right about EU bank stocks. I’m definitely going to be keeping a close eye on them..

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