G3 Recap 9-2-11

Main Items:

  • August Employment data was pretty ugly:
  • Nonfarm Payrolls was 0 vs 68k exp and 117k prev. The Verizon strike cut 45k from the total. The July print was revised lower by 32k.
  • UE rate was unchanged at 9.1% as exp.
  • Hourly Earnings growth fell -0.1% MoM vs +0.2% exp and 0.4% prev
  • Hours Worked declined to 34.2 vs 34.3 exp and prev.
  • The New York Times reports that the government has filed suit against more than 12 large banks for misrepresenting the quality of mortgage securities sold to Fannie and Freddie. The FHFA is seeking billions in compensation.
  • The Trokia (IMF / EU / ECB) have suspended their fact finding mission in Athens. They claim they left to allow authorities to complete their technical work on the budget. There are indications that Greece is falling short of its targets and some are starting to discuss whether or not the three will release the September tranche of 8bn to Greece.
  • Café and restaurant owners refused to pay a VAT increase in Greece. FT
  • WSJ says US officials are pressing the company to show what measures it could take should conditions worsen further from here. The Journal says this was an “unusual” request from the Fed. BoA has responded w/a series of options, inc. potentially issuing a separate class of stock tied to the performance of its Merrill unit (a MER tracking stock).


  • Eurozone PPI rose 6.1% YoY in July as exp vs 5.9% prev
  • UK PMI Construction declined to 52.6 in Aug vs 53.2 exp and 53.5 prev


  • Here are the bull and bear cases:

    Bull case: Data is choppy. This could be a one off. In fact, after adjusting for striking workers, (white horizontal line below) private payroll growth remains at non-recessionary levels:

    Also, equities are cheap, ISM printed above 50. Sentiment is bearish, perhaps overly so.

    Bear case: the employment AND earnings data is bad, and has been getting worse for several months now. Regional PMI still suggests ISM below 50. PMI for the vast majority of countries globally has been falling and has broken or is close to breaking the 50 mark. Monetary stimulus has hit a barrier.

    Conclusion: ultimately, it is changes in expectations that drive changes in asset prices. As a result, we should look at where expectations will be. On that front, the trend in the data is getting worse, we know that economic data tends to trend, and the catalysts on the horizon are all negative for growth – whether it is austerity in the US, the impact of Irene, or some sort of default in the EU. The most important sign may simply be funding costs. USD 3m Libor has been setting higher for over a month now, and it is unlikely that risk assets can rally until funding costs at least stabilize.


5 thoughts on “G3 Recap 9-2-11

  1. bunds and treasuries below 2% signalling a very low future growth/inflation path indeed. seems commodities and equity holding up on expectations of future policy action and easing from EM countries may very well be a source of hope and developed nations ability to increase aggregate demand impaired at a number of channels.

    am still surprised that realized fx vol continues to be so low (with the exception of swissy) and that some countries pricing in rate hikes like kiwi. seems rather wrong. maybe a punt at selling nzd/usd or nzd/gbp here not so bad given relative rate moves in both markets.

    and in terms of policy errors, well the ECB is becoming consistent with premature tightening and Europe with a moribund financial sector. while unfortunately seems obama will continue to prefer trying to “create” jobs. plus ca change, plus it sounds like Japan.

  2. Currently, it all seems to rest on the animal spirits rather then fundamentals, both in the economy and in financial markets. Wait-and-see seems to be the wisest approach short-term.

    1. i thought sentiment was part of fundamentals :) … this coming week may have some real fireworks in store out of germany … wait and see indeed.

      btw, my new work place has this site blocked … must be all the subversive content!

      1. Ok, let it be “currently, it all seems to rest on the animal spirits rather then [fundamentals minus the animal spirits]”:)

        You probably have WordPress.com blocked. Kinda overzealous, in my opinion.

  3. Bert – congrats on the new gig! Are you in NY or London?

    I added an option for email subscriptions in the top right corner. Hopefully that will allow you to get around the firewall.


Comments are closed.