Recap 10-15-12

Commentary:

The Bank of Canada Business Survey showed weaker growth expectations,

But an increase in labor shortage constraints to the highest level since 3Q 2008:

This in turn is contributing to an increase in expected price hikes:

Notable:

  • US Retail Sales improved to 1.1% in Sept vs 0.8% exp and 0.9% prev. Strength was broad based, as the control group figure jumped 0.9% MoM vs 0.4% exp and -0.1% prev.
  • China M1 growth jumped to 7.3% YoY in Sept vs 4.7% xp and 4.5% prev.
  • The trade surplus in China widened to $27.67bn from $26.66bn, above estimates of $20.54bn. Exports rose 9.9%, exceeding the market expectation of 5.5%.
  • German Finance Minister Wolfgang Schaeuble ruled out a Greek sovereign default
  • In September, daily oil production in Iran fell to the lowest level in early a quarter-century, according to monthly data released on Friday by the International Energy Agency.
  • High speed trading profitability falls – profits from HFT in American stocks is expected to be only ~$1.25B this year, down ~35% Y/Y and ~74% lower than the peak of ~$4.9B in ’09. HFT accounts for only ~51% of US trading volumes, down from ~61% three years ago. NYT
  • Lloyd Shapley and Alvin Roth, pioneers in matching theory, won the Nobel Prize in Economics. Details The Gale Shapley algorithm for the optimization of marriage between 10 women and men works as follows: (The matching program for US medical residents and residences are based on it)
  1. The Gale-Shapley algorithm can be set up in two alternative ways: either men propose to women, or women propose to men. In the latter case, the process begins with each woman proposing to the man she likes the best. Each man then looks at the different proposals he has received (if any), retains what he regards as the most attractive proposal (but defers from accepting it) and rejects the others. The women who were rejected in the first round then propose to their second-best choices, while the men again keep their best offer and reject the rest. This continues until no women want to make any further proposals. As each of the men then accepts the proposal he holds, the process comes to an end. Gale and Shapley proved mathematically that this algorithm always leads to a stable matching.
  2. The specific setup of the algorithm turned out to have important distributional consequences; it matters a great deal whether the right to propose is given to the women – as in our example – or to the men. If the women propose, the outcome is better for them than if the men propose, because some women wind up with men they like better, and no woman is worse off than if the men had been given the right to propose. Indeed, the resulting matching is better for the women than any other stable matching. Conversely, the reverse algorithm – where the men propose – leads to the worst outcome from the women’s perspective.
  3. It is a truth universally acknowledged, that a single man in possession of a good fortune, must be in want of a wife.

Upcoming Data:

  • Tues: UK CPI, German Zew, EU Trade Balance, US CPI, NAHB Housing Index
  • Wed: BoE Minutes, UK Jobless Claims, China GDP, IP, Retail Sales
  • Thu: US Jobless Claims, Philly Fed
  • Fri: CanadaCPI, US Existing Home Sales
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