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ECONOMICS – FINANCE – WORLD NEWS – GREEK DEBT

Spain turns to stimuli, as Merkel points to two-tier Europe

Yesterday…
Spain’s unemployment rate rose to a new high of 27.2%, possibly marking the final point that austerity measures haven’t work in this case or simply don’t work at all (hello, Keynesians). Between January and March, almost 240,000 people lost their jobs. read BBC
Following the announcement, Mariano Rajoy announced the government would lay low on cuts and tax hikes, as even though the deficit has shrunk, the country is doing miserable. Stimulus for everyone! read WSJ

The UK dodged the bullet on a triple-drip recession, reporting first quarter GDP growth of 0.3% from the previous quarter

This morning…
Angela Merkel stirred the European debate with remarks about the potential impending rate cut by the ECB. Merkel pointed out that country’s like Germany actually needed a rate increase, while other country’s required further easing, underlining the divide between functional and dysfunctional Europe.

In Italy, coalition building is underway. Prime Minister-to be Enrico Letta said the conservatives would have to work out a compromise regarding the property tax that Berlusconi promised to get rid off before joining the coalition.

Today, the US is announcing first quarter GDP growth, which is expected to come in at 3% from the final quarter of 2012. Over the next three months, this number will be revised three times, once due to the change in government statistics in late July. read WSJ

In Japan, consumer prices have fallen fastest in two years in March, which doesn’t really come as a surprise considering all the excess liquidity in the system. Prices fell 0.5% on the year, slightly more than expected. read Bloomberg

Weekend reading:
Italy’s new heads of state – an evalution, read The Economist
– meet Janet “anti-inflation” Yellen, possibly the next head of the Fed, read NYTimes
– why the city of Los Angeles is suing Deutsche Bank, read Businessweek
real bad boys smuggle dairy, read Bloomberg

Have a good one.

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All according to plan – US set to grow 3%; China’s slowdown on purpose

Over the weekend…
the UK lost its Fitch-assigned AAA rating on the back of the weak economy and poor outlook. Moody’s downgraded the country in February, but also assigned a negative outlook, while Fitch is optimistic that the UK will return to credit-worthy prosperity around 2014/2015. read article

In Italy, Giorgio Napolitano was re-elected President for the coming seven years on Saturday. The independent is expected to propose a bipartisan cabinet, considering that he was elected by both sides of the political spectrum to avoid another round of elections. Everybody except for Beppe Grillo seems happy; he had called Napolitano’s re-election a coup d’etat. read article

The G20 meeting ended with everyone promising to not engage in competitive devaluation of currencies, defending Japan’s monetary policy as appropriate and targeting domestic demand. read article

This morning…
word got out that the US will see 3% growth in July, due to a reform of the methodology behind government statistics. 21st century GDP also takes film royalties and R&D spending into account:

Billions of dollars of intangible assets will enter the gross domestic product of the world’s largest economy in a revision aimed at capturing the changing nature of US output.” read article

Meanwhile in China, central bank Governor Zhou Xiaochuan justified the country’s below-expectations growth rate of 7.7% in the first quarter of 2013, saying slow growth was necessary as structural reforms are being put into place. read article

Otherwise the counter-austerity voices are getting louder again, this time it’s Pimco’s Bill Gross (not that surprising) and Jose Manuel Barroso of all people, the President of the European Commission. Could this be the beginning of the end of Angela Austerity Merkel’s dominance in European policy? Probably not.

So long.

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Brussels vs Moscow, and Bernanke leaving the Fed

Yesterday…

the Federal Reserve confirmed its asset purchasing program worth $85bn per month to continue until the US economy would improve past the first scarce signs of recovery. read article

Ben Bernanke also alluded to leaving the Fed to pursue other projects, retirement for example. read article

The UK budget saw five more years of spending cuts, right past the 2015 elections to alleviate the country from its £121bn budget deficit and ensure its credit rating. The Office of Budget Responsibility expects 2013 growth to be at 0.6%, followed by 1.8% in 2014read article

Elsewhere, this happened over the course of yesterday: Cyprus’ Finance Minister conferred with Russia, while Angela Merkel said Cypriot banks had to chip in for the bailout, followed by Brussels saying that Cyprus had to present its own refinancing plan after voting against the EU proposal. It all looked like we had a new credible exit candidate until Cyprus asked for more time to come up with a better idea. Now it just looks like Greece. Here are four scenarios that could unfold over the coming days and weeks.

This morning…

The European Central Bank announced that Cyprus had until 25 March, coming Monday, to get its bailout plan ready without losing access to the ECB’s Emergency Liquidity Assistance (ELA) that keeps the island’s banks alive. read article

Finally, China released some promising manufacturing data, showing the sector expand faster than expected and giving the recovery hypothesis more support. read article

So long.

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Across the board disappointing results: Japan’s deficit, Apple’s earnings, S Korea’s GDP

Over the past weeks, Japan has done a lot to try and convince the rest of the world of its [return to] well-being, but no distraction really did the job. And now this: Japan’s 2012 trade deficit hit JPY6.93tn ($78.27bn), the highest ever reported. Reasons are poor performance of its largest companies, rising fuel costs, the strength of its currency and the whole argument with China over the Senkaku Islands in the East China Sea. read article

South Korea’s 2012 GDP underperformed, recording the weakest growth figures since 2009. The country’s very own central bank had forecast the economy to grow 3% over the whole year – the actual number game in at 2%. To blame is the eurozone crisis, among other things, weakening demand for export products, which account for 50% of the South Korean economy. read article

The US House of Representatives approved a short-term extension on America’s borrowing spree, answering the question of whether the US will be able to pay its bills in the near future. This has bought some time to come up with a budget proposal to solve all problems – and without raising taxes, if you believe Paul Ryan, Chairman of the House Budget Committee. read article

The timing of the extension means the debt limit will be revisited after two other fiscal deadlines. Many members of both parties have said they want to revise of replace across-the-board spending cuts set for March 1, and they will need to renew funding by March 27 if they want to prevent a partial government shutdown. They are far apart on how to achieve both goals.

According to Reuters, the US Treasury will need the remaining $16.4tn the country is legally allowed to borrow until early March.

In Davos, Angela Merkel shows patience, saying that she was going to listen to David Cameron‘s complaints to work out the best possible solutions under which the UK would stay in the European Union. Wise words, after all, the UK’s vote would be helpful on her European budget proposal. Barack Obama also urged Britain to stop messing around and stay in the union. In the background economists polled by Reuters say that there is a 60% chance the UK will lose its AAA rating, which it has held since 1978, in the coming 12 months.

In other news, Apple announced earnings last night, showing the weakest increase in sales in 3.5 years, and the most disappointing profit growth since 2003. Since the shares of the world’s largest public company hit $700 in September, the price has fallen by 27%. Other technology companies like IBM, Google and Netflix did well and beat expectations in Q4 of the last year. Microsoft will report earnings tonight. read article

So long.

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Politics is about expectations: a referendum, taxes and inflation

Brace yourselves, it’s a Europe-heavy news day.

The big news of today is David Cameron’s EU speech, announcing a UK membership referendum sometime between now and 2017. Britons are applauding, while the rest of the EU is in a state of frustration. With the words of Laurent Fabius, Foreign Minister of tax hell France: “If you join a football club, you can’t say you want to play rugby.” Well, no. But was that what he was doing? Not really. Good analogy nonetheless. It set the tone for European politics this yearread article 

Eleven European countries (Germany, France, Italy, Spain, Austria, Portugal, Belgium, Estonia, Greece, Slovakia and Slovenia) have proceeded to drafting legislation for a financial transaction tax on the trading of stocks, bonds and derivatives. That sounds specific, but really isn’t, as Brussels hasn’t decided on specifics at all. So one of the best reasons not to go on a rant of the ineffectiveness of the policy that is meant to generate €57bn for various rescue vehicles, is that it might be stuck in parliaments across the continent for a while, despite its scheduled implementation of January 2014read article

In Israel, Benjamin Netanyahu has been re-elected, though not exactly by a landslide. In the sobering words of the BBC:

It was relief more than real jubilation. The simple truth was that the combined list of candidates headed by Prime Minister Benjamin Netanyahu had performed disappointingly. But politics is about expectations.

More analysis from Israel, here: read article

In Davos, where the World Economic Forum [attended by both Merkel and Cameron – awkward] has begun, Russian Deputy Prime Minister Arkady Dvorkovich has admitted that Russia’s perception abroad is bad for foreign investments and is holding the country back. watch video

Overseas news bring us the policy decision of the Bank of Japan, which is braced to do what new PM Abe talked about all January: pump money in the economy to meet the 2% inflation target. In fact, Japan has never had a firm inflation target like that, so you’d expect it to be big news. Yet, nobody, from analysts to the IMF’s Christine Lagarde, seems overly impressedread article

In the background, Deutsche Bank has to simulate a breakup of its consumer and investment banking units. read article

So long.

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Japan opens floodgates [further]; Euribor to be reformed

Japan will spend JPY 10.3tn ($116bn) on an economic stimulus package that is set out to boost GDP by 2%create 600,000 jobs and worsen the country’s public debt situation. At this point, Japan’s debt amounts to 220% of GDP. About a third of the stimulus will be spent on disaster prevention and reconstruction; natural disasters, that is, not financial ones. read article

A handful of conservative European leaders are meeting in Cyprus to talk budget today, which is awkward because Angela Merkel has publicly opposed a bailout of the country. read article

In the background, Silvio Berlusconi proclaims that he “will not admit any responsibility for Italy’s crisis:

Berlusconi blamed his legal troubles, which include a tax fraud conviction and a pending trial on charges of engaging a minor in prostitution, on politically motivated judges and prosecutors.

After the recently re-arisen Libor scandal (some more dissecting of what Deutsch Bank did, here), the European Banking Authority and the European Securities and Markets Authority have recommended to reform the Euribor benchmark interest rate as well. read article

London is getting cold again these days and so is China. In the worst winter, like, ever, consumer prices accounted for 2/3 of the 2.5% inflation hike [from 2011] in December. The cold weather is pushing the price of vegetables up, and higher inflation could endanger future government stimuli, although that’s still a bit far-fetched at this point. read article

This week, both Morgan Stanley and American Express jumped on the bandwagon and announced significant staff cuts. While MS plans to fire around 1,600 people6% of its global workforce, AmEx will reduce its employee base by 8.5%, which will cost about $400m in severance payments.

Weekend reading

– a song for Paul Krugmanwatch video

– women in defense (the industry, stupid!), read article

– the case for the $1tn coinread article read another article

– Obama’s new posse – controversial(?) choices at the White House, read article

Have a good one.

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Japan’s recursive debt dilemma; Papandreou’s mother evaded taxes on €550m

The morning news sang the song of positive Chinese manufacturing data as the savior of the world economy. Quietly, in the background, the CEO of the Bank of Tokyo pointed at the systemic risk deriving from government debt exposure of Japanese banks. According to the Bank of International Settlements, Japan’s lenders hold 900% of their tier 1 capital in Japanese government bonds. For comparison: since 2002, the equities to tier 1 ratio is capped at 100%.

As usual, things are messier in Europe, where Moody’s downgraded the credit worthiness of the ESM super-duper rescue fund over the weekend, while Greece announced its intention to buy €10bn in debt back.

Angela Merkel said in a weekend interview that she was willing to consider a Greek debt haircut in a possible world in which Greece got its finances back under control and doesn’t require additional debt. In other words, she isn’t really.

In other Greece news, Margaret Papandreou, the former prime minister’s 89 year-old mother is the beneficiary of an HSBC account worth €550m in Geneva. Oh well that is awkward. Switzerland has loosened its privacy laws on bank accounts to give the troika a better look at Greek tax evasionread article

In an embarrassing attempt to market Paris as a location, Christian Noyer of the Banque de France as argued that it was intolerable for the eurozone to have its financial center, i.e. London, outside the monetary union. Under normal circumstances, one should laugh at Noyer for being French […] and ridiculous [……..], but he has influence in the ECB, which will be have power over all European banks as soon as the banking union is agreed upon. read article

In the world of aviation, Delta, the world’s second largest airline after United Continental, is considering buying the 49% stake in Richard Branson’s Virgin Atlantic that is currently held by Singapore Airlines. In 1999, the stake was wrth £600m. If the deal goes through, Delta’s partners in crime Air France-KLM could acquire part of Branson’s 51%. Delta’s motivation for buying into the airline is (surprisingly) not the midnight ice cream-trolley on 34,000 feet, but Virgin’s slots at Heathrow, where it is ranked third in terms of take-offs and landings per week. read article

No room for news from the fiscal cliff, in a word: deadlockread article

So long.

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Splitting up – Barclays reconsiders investment bank, Catalonia favors seperatism

Barclays may have to follow the seemingly unavoidable path of European banks and split. The bank’s shareholders have demanded that new CEO Antony Jenkins should let go of investment banking operations, along the lines of UBS‘ shut down of its fixed income business last month that eliminated 10,000 jobs. The Swiss bank was fined £30m by the British FSA in connection to the $2.3bn insider trading loss that Kweku Adoboli got seven years for. Of course, axing the division would help Barlcays get around ringfencing investment banking and retail operations and may therefore be desirable from a regulatory point of view. read article

All of this coincided with Qatar Holdings selling a pile of Barclays shares this morning. read article

Yesterday, Spainish region Catalonia held elections, which saw a slight reduction of seats of CiU (Convergencia i Union), the party that demands a referendum. But those seats lost, were picked up by ERC (Esquerra Republicana di Catalunya), which demands independence from Spain without a referendum and as soon as possible. Four parties in favor of separating from Spain, holding 87 of 135 seats, are now present in the Catalan parliament. Gaining independence from the Spanish mothership would neither be simple nor quick. Catalonia is contributing 7-8% of its output to the central government in Madrid, and could cause an overhaul of Spain’s fiscal politicsread article

In terms of reforms, there is a new idea from Germany’s Finance Minister, who wants to force banks to write a restructuring manual for a bankruptcy scenario. Lawyers and advisory firms just collectively ordered new cars.

Otherwise, it is Cyber Monday, which is estimated to be the biggest online shopping day of the year for the third time in a row, says the Associated Press.

In Brussels, the “Eurogroup meets for third go at kicking can down the road” and to assess Angela Merkel’s campaign strategy in conjunction with Christine Lagarde’s hopes and dreams of a Greek debt haircut.

In the week to come, we’ll get the new governor of the Bank of England (330 pm today), updated US GDP, the Spanish budget, Chinese manufacturing and all unemployment number of the rainbow, with France on Tuesday, Germany on Thursday and eurozone on Friday.

So long.

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War of the roses: IMF vs EU

There won’t be a news brief tomorrow, Wednesday, 14 November 2012.

Everything seems a bit unsettled today: the EU and the IMF had there biggest falling out yet, Swiss banks face more fraud investigations now that Switzerland is opening up more and more to bi-lateral data sharing agreements, the investigation of ex-CIA head David Patraeus‘ private affairs are getting increasingly confusing, adding more people to what started as a simple affair (as simple as an affair with the head of the CIA can be…), and the FSA is investigating the potential manipulation of prices in the British gas market. It’s messy, that’s what it is.

“Just this time, we’ll let you get away with it, you hear me?”

That is what EU finance ministers decided to tell Greece yesterday. What’s one concession when everything else is working according to plan? So Greece got a two-year extension to balance its budget. Except, that’s not what the IMF wanted to hear them say. Lagarde insists to stick with the 2020 target for Greece to decrease the deficit to 120%. The decision about further rescue funding is postponed to November 20, when all parties step back into the ring. While Eurogroup chairman Jean-Claude Juncker, who has admitted to lie to the press at times, indeed wants an extension of the deadline for Greece, Lagarde is in favor of another haircut, to help the country meet its targets. In Germany, Angela Merkel is worried about these developments; she has an election coming up in September 2013 and big losses for the German taxpayers would be ill-timed. read article

Also in Germany, 50 clients of struggling Swiss bank UBS are being investigated for tax fraud. The personal details of clients were obtained on CDs with information of Swiss bank accounts held by German citizens, which were purchased by German tax authorities in 2010. Last week, the same authorities started an investigation of UBS employees for aiding said tax fraud. Switzerland is just not what it used to be anymore.

Meanwhile, the New York stock exchange has to suspend trading of 216 companies due to a technical fuckup, and the UK inflation exceeded expectations by 0.2% for October, hitting 2.7% due to an increase in tuition fees and food prices.

In post-election AmericaGlenn Hubbardeconomist and dean of the Columbia University Graduate School of Business, said the US could make significant steps away from the January fiscal cliff by increasing taxes on high income earners. The crux: Hubbard was one of Mitt Romney‘s led economic advisors throughout his presidential campaign. Awkward.

So long.

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Democracy (Obama), anarchy (Greece) and communism (China)

Well, at least we don’t have to worry about what crazy things Paul Ryan is capable of. Obama won the election and now has the luxury of another four years to finish what he started without having to start campaigning again two years down the line. With 303 versus 206 electoral votes, the result is much more saturated than anybody expected after the polls had put the candidates up for a close finish. The Republicans keep the House, the Democrats the Senate. Obama, as positive as ever, said “For the United States of America, the best is yet to come.

An extension of the Obama-Bernanke days, means that the US economy will continue to have access to funds to stimulate growth. In response, the dollar fell against every but one counterpart currencies.

But as the new old president is just waking up, the media has pasted his name into all those now-that-we-got-this-settled-lets-talk-about-the-fiscal-cliff-some-more articles. FT WSJ

Bloomberg Businessweek is making another point: see picture

Back in Europe, Greek drama is looming – again. On November 27, the nation is due another bailout payment, this time worth €31.3bn. But Brussels can delay the tranche again, as the policy disagreements that have delayed it to begin with are still not resolved. In Athens, politicians are voting on austerity measures tonight. They could include abolishing Christmas bonuses for public service workers and more cuts in welfare and pensions. read article

In the background David Cameron and Angela Merkel are clashing over the EU budget. Cameron wants to see cuts worth €1tn over the next seven years, while Merkel is pressing for a €100bn budget increase. Cameron is threatening to block the budget. Merkel is threatening to block the budget meetings in case of the UK exercising its threat. Good times. read article

Tomorrow, China’s Communist party is holding its 18th party congress. President Hu Jintao has only one week left in office, before Xi Jinping taken over. Time to revisit how China’s democratic ambitions are doing. read article

So long.

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