Recap 6-15-12

Main Items:

  • UMichigan Confidence declined to 74.1 in Jun vs 77.5 exp and 79.3 prev
  • US Empire Mfg declined to 2.29 in June vs 12.5 exp and 17.09 prev
  • Greek elections take place on Sunday. The first official projection will be released at 2:40pm NY time. 5pm updated projection based on 37% of votes counted. 6:43pm update based on 61% of votes counted. 1:17am (Monday) results based on 99% of votes counted


  • BoJ kept policy rates unchanged as exp

Upcoming Data:

  • Sun: Greek Elections
  • Mon: NAHB Housing Market Index
  • Tues: UK CPI, German Zew, US Housing Starts, Japan Trade Balance, BoJ minutes
  • Wed: MPC Minutes, UK Claimant Count, FOMC
  • Thurs: EU PMI, UK Retail Sales, US Jobless Claims, Markit US PMI, Philly Fed, EU Consumer Confidence
  • Fri: German IFO, Canada CPI


The Greek election this weekend could actually be a non event, given how much time market participants have been preparing for it. I think the main result is that positions were probably squared going into it, so position squeezes may be less likely next week. In any case, no matter what happens, the economic effect will be unknown for some time, given that we will need to see how the new Greek government (if formed) negotiates the austerity package with the Troika.

The passing of the Greek elections and the EU summit at the end of June should allow both market participants and central bankers to shift their focus back to growth and inflation. And the picture there remains discouraging. The BoE appears to have moved first, having announced new initiatives to provide funding for the non-financial sector. This is likely to be followed by an extension of Twist by the Fed next week, and additional QE programs by the ECB & BoE in early July.

These actions are likely to be supportive of fixed income, but the effect on risky assets is less clear beyond a short term pop. In particular, there are questions regarding how effective the additional policy actions will be, given how low yields already are. Also note that REAL interest rates are unlikely to fall much further, given that inflation globally has been falling.