Death Star Economics



Letta new Italian PM; Apple profits drop for first time in decade

It was a dark day for the European economy, with April PMIs across the globe disappointed, except for France, which beat expectations and soared to four-months highs. China and Germany on the other hand, undercut expectations – Germany even fell below the magic mark of 50, to 48.8, the lowest level in six months. read Bloomberg

After all the united G20 talk of appropriate monetary measures, S&P said that there’s a 30+% chance that Japan will lose its AA rating. The reasoning: it’s great to have quantitative easing, stimuli and private sector involvement, but that strategy doesn’t work if all you do is print money. read Reuters

Meanwhile in Portugal, the government is planning to lower corporate taxes to attract business. Good timing. read WSJ

Right after close, the Twitter account of the Associated Press was hacked, posting a tweet about attacks on the White House. The Syrian Electronic Army claimed responsibility. read Alphaville read BBC

Otherwise, it was all about Apple. The tech giant posted first quarter earnings,showing that profits dropped for the first time in a decade in year-on-year comparison. Alongside quarterly results, the company also announced an expansion to its now $100bn share buyback program to return money to investors. read WSJ

This morning…
Italy is set to announce a new Prime Minister. The current candidates are Guiliano Amato (Prime Minister 1992-1993 and 200-2001), Matteo Renzi (Mayor of Florance) and Enrico Letta (center-left deputy leader), all of which are less crazy than Berlusconi and none of which have worked for Goldman Sachs. read Reuters
BREAKING: Enrico Letta set to become Italy’s new prime minister

In anticipation on next week’s ECB meeting, rumor has it the Mario Draghi is likely to cut another quarter of a point off current interest rates, as inflation rates are below target and the eurozone finds itself back in recession. read Reuters

So long.


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China slows, Greece set to grow again

Over the weekend…
Venezuela has elected a new President, after re-elected Hugo Chavez died in early March after long illness. Nicolas Maduro is the man Chavez singled out as a worthy candidate himself, and the election result may have been driven my emotions more so than politics. read article

This morning…
China reported Q1 GDP growth, which came in lower than expected. Year-on-year, the country’s economy grew at a rate of 7.7% in the first three months of 2013. Prior estimates had suggested 8%; Q4 2012 came in at 7.9%. Again, we are facing a week of panic over the Chinese slowdown. read article

Otherwise, troika officials are arriving in Portugal today to assess the country’s austerity plans and post-bailout progress. Simultaneously, the body, composed of the EU, the ECB and the IMF, released a report claiming that Greece could return to growth next year. read article

The week ahead…
will bring us the first batch of earnings from New York-listed corporates, including a bunch of banks like Citigroup, Bank of America and Goldman Sachs, and tech companies Google, Microsoft and IBM.

The Italian parliament will try to elect a new President in the coming days. Officially, the process to find Giorgio Napolitano’s successor begins on Thursday, but it is expected to last a couple of days.

So long.

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Portugal could need second bailout (to pay for the first)

This morning…

the Eurogroup is meeting in Dublin; on the menu: stop messing around with bank stress tests (i.e. tighten measures) and the bailout schemes of Portugal and Ireland. Some say even if Portugal was granted an extension of its bailout repayment, it could potentially face a second collapse and thus a second bailout. Ireland is looking in the same gloomy direction. According to the FT:

Lisbon’s bailout is due to come to an end in July 2014 and the extension of maturities of its bailout loans is intended to smooth its full return to markets. But it has to raise €14,1bn next year and €15bn in 2015, whereas before the crisis it was typically raising €10-€12bn a year. Ireland is also facing a big financing challenge. It needs to refinance €20bn per year from 2016-20, which is about 12 per cent of the country’s projected economic output for this year.

Thus, the world is quiet in anticipation of next week’s news country of choice. It might be early days for Slovenia, so maybe it’ll drift back to Cyprus or Italy.

Meanwhile, Japan will officially enter the Asia-Pacific trade talks this summer, which are currently held between Canada, Mexico, Australia, Chile, Peru, Singapore, Malaysia, Vietnam, Brunei and the US. read article

Weekend reading…
– The Economist on Margaret Thatcher‘s legacy, read article

– William Cohan on the revolving door between Wall Street and the White House, read article

Climate change may double turbulence on transatlantic flights, read article

– The Winklevoss twins are all over bitcoin, read article

JPMorgan explains why you should avoid investment banks, read article

Have a good one.

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Obama to unveil $3.77tn budget

Yesterday…Slovenia‘s new Prime Minister Alenka Bratusek said the country didn’t require any help to deal with its banking crisis that the OECD seems to consider as serious but not urgent. Many Slovenian banks are already owned by the state; the OECD has recommended stress tests and the potential recapitalization or closure of failing institutions, but Bratusek is having none of it, saying the bad bank that will be set up until early summer will be able to take the toxic assets. read article

This morning…
EU is considering extending the bailout programs for Ireland and Portugal. According to Reuters, where this story came from, this will be discussed at the Eurogroup meeting on Friday.

To make everything worse, the ECB’s [first ever] Household Finance and Consumption Survey found that the average Cypriot is richer than the average German (by median net wealth). Even though the classic North-South divide re-appears in the median gross income figures, that won’t go down too well. read article

China reported its first trade deficit in over a year for March 2013, again it could be another hangover from the Lunar New Year holiday, leading to increased imports, while exports grew less. read article

Meanwhile in the US, President Obama will unveil a $3.77tn budget plan at 11am EST today, when he will speak from the White House. read article

So long.

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A new benchmark fixing scandal!!


former British Prime Minister Margaret Thatcher died of a stroke at the age of 87. Despite her polarizing character, there seems to be a consensus of her importance to the role of the UK on the global stage, both economically and politically. Finally, she also remains Britain’s only female PM. Most used terms: ‘liberalization’, ‘relentless’, ‘unforgiving’, ‘open markets’. read article

In the US, we see the beginning of a new benchmark fixing scandal: interdealer broker ICAP and some unnamed banks have been subpoenaed by the CFTC yesterday for potentially fixing the interest rate swap benchmark ISDAFIX. read article

Asset manager BlackRock has hit back at the Fed’s QE program, saying it distorted the markets. This is quite a change in BlackRock’s stance, as the company was all over government debt before until it started to nudge investors into less interest rate-sensitive products. read article

Following the court ruling that restricted Portugal‘s austerity measures last week, the country could see delays for future funds and no revision of the repayment schedule. According to the FT:

The court ruling means Lisbon will not receive the next €2bn installment of its €78bn bailout until it has convinced international lenders that fresh cuts in spending on health, education and social security will be sufficient to compensate for the rejected measures.

This morning…

we got CPI data from China, showing lower inflation at 2.1%, with food price inflation down from 6% in February (i.e. the Lunar New Year is a ripoff) to 2.7%.

In the UK factory output rose by 0.8% in February, more than the median estimate of 0.4% as according to Bloomberg, while German exports slumped in February, just to see imports decline by more than double the rate at -3.8%. read article

So long.

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Portugal is this week’s Cyprus

Over the weekend…the collective attention was brought back to Portugal, where the country’s highest court ruled that spending cuts in public sector salaries as well as state pensions were unconstitutional. Sounds like a bit like something Greece would do. Needless to say those cuts weren’t just for fun and games, but indeed to keep Portugal out of the EU’s dog house and on track for its €78bn bailout package.

Luxembourg‘s Finance Minister Luc Frieden said that the country would stop opposing the sharing of banking data within the EU, going along with the trend of increasing transparency in [former?] tax havens. read article

This morning…
there is the weakening JPY reacting to Tokyo’s new harder better faster stronger QE measures that will increase monthly asset purchases to JPY7.5tn. In fact, then yen hasn’t been this weak since May 2009. read article

While Japan’s 2% inflation target until 2015 seems a bit fishy to some [most recently China], following the above, Christine Lagarde of the IMF is a big fan. According to her, it will improve global demand, and the inertial upswing in the US economy was proof enough of that. read article

As for the rest of the week, the Fed’s Open Market Committee is meeting on Wednesday, continuing the discussion regarding when and how America’s money tap can be turned off. Otherwise, there will be industrial and trade data from China and various European countries, as well as a review of bailout programs in Portugal and Ireland. in other words, Portugal is this week’s Cyprus.

Have a good week.

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Eurozone stuck in recession until 2014 (except for Germany, because they think positive)

It’s a Europe-centric Friday, with breaking news of poor performance all around Europe’s economies – we know, thanks for pointing it out again.

The Commission revised its growth expectation for the year, saying the eurozone’s economy will contract by 0.3% in 2013. Bye bye, 0.1% growth. Bye bye, post-recession world. It will be accompanied by an unemployment rate of 12.2% and inflation of 1.8%. At least there will be room for rate cuts. read article

In Spain, the budget deficit increased to 10.2% due to aid costs for the banking sector. The bailout package for Bankia alone added 3.2 percentage points to that. Incidentally, Bankia, which is reporting 2012 earnings next week, will report annual net losses worth €19bn+, the largest loss in Spanish corporate history. read article

The German Ifo business climate index came in higher than expected, because Germany is vehemently following its optimism strategy that includes ignoring any data or reality.

In good news, the ECB recorded a €1.1bn profit from interest payments on a €208bn debt portfolio of PIIGS bonds. Over the last year, income from sovereign bonds even amounted to €14bn. read article

Meanwhile, US consumer confidence is being rocked by rising prices on gas, which climbed 15% up to $3.75 per gallon last week. Car owners in Europe are weeping and cycle to the US embassy to apply for visas. read article

Over the weekend, we’ll see Italy’s general elections (24-25 Feb), aka the Silvio Berlusconi show. In case of a hung parliament, the election limbo would continue for months, and Italy would be stuck with a caretaker government that doesn’t want to implement policies. read article

Weekend reading:

– horsemeat economics, read article

– and then ‘cyberwarfare‘ became a thing, read article

– rethinking drug policiesread article

– in case you’ve read the Bloomberg editorial on $83bn annual bank subsidies, here’s a discussion of it read article

Have a good one.

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In Europe, the rate of concern keeps rising

If we think about for how long concerns about the eurozone have been growing already, it makes me wonder just how muchconcern is necessary (also, is this a compounded rate of concern?), before it turns into some ludicrous version of panic

News of the day: The ECB left its core interest rate where it was before (1.00%), just as everyone had predicted. This will probably end up with an idealistic discussion about monetary policy that could last for the rest of the week. Also, now that the rate has been left alone, it is more likely that it’ll get cut even further next month.
As MarketBeat puts it:

But there is only so much the ECB can doThe fix for the euro-zone’s woes must come from its governments. Any relief the ECB could provide would be temporary in nature, and ultimately would allow Europe’s governments to put off making any hard decisions to solve the crisis.

Sounds inefficient and pretty much exactly like what we’ve been seeing in all those EU summits. Tell me again that the EU has turned into ze German Union, ja…

Speaking of Germany. YesterdayGermany has rejected using the various European bailout funds to directly inject cash into Spain’s crumbling banking system. It’s a game of chicken to achieve more or less the same thing. Germany wants Spain to request a bailout from the EFSF and then do with it whatever they please, while Spain wants Germanyto agree to direct financial aid for its struggling banks only. The difference seems mostly semantic and legal, but either way, it might be time for things to get going.

Oh, look at what happened there! Confusingly using the same picture, the FT reports that Spain is now down on its knees, begging for European institutions to please do something and suddenly liking the idea of eurobonds.

Here’s what else happened over the long weekend:

– At the EU-Russia summit on Monday, leaders (always has a communist ring to it, doesn’t it?) discussed Syria and, who would have guessed, the euro.

– Also on Monday, Portugal injected €6.6bn in three of its banks (Banco Commercial Portuges, Banco BPI and Caixa Geral de Depositos) to help them meet European capital requirements. Portugal is sort of following its recovery plan, but the EU appears to keep planning for another bailout. The plan, which states that the country could go back to raising funds from the private sector again next year, is endangered by Portugal’s current high borrowing costs.

– Finally, George Soros gave a speech about the eurozone and the end of civilization as we know it on Saturday, here’sEzra Klein’s dissection of it.

All this is making the topic of discussion for this week: the European stab at a banking union.

Maybe we all need something to laugh this day off. Thank god, Charlie Sheen is on the cover of Rolling Stone this month. That ought to be good.

So long.

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Like December all over again

The news brief is taking a break until next week Wednesday, May 16, 2012.

It’s a day for whining in the country they call Europe. Spending in the UK crashed in April, apart from umbrella sales, which rose by 5000%, says the GuardianPortugal erased four public holidays, two of which were of religious nature, from the calender from 2013 to 2018 to boost the economy. And Spain, well Spain is following in Greece’s footstepsonce again…

And to think it was only two days ago that the schizo market interpreted Spain’s bank sector nationalization as good news. (Zero Hedge)

So the never ending implosion of the EU continues, but it’s hard to find more cheerful news elsewhere, with the US worrying about its unemployment situation. Like MarketBeat put it:

That leaves the onus on Europe to drive market option. Even the optimists have a tough time finding reasons for hope in that scenario.

Alexis Tsipras, Greek far left leader, who is still holding the mandate to form a coalition in Europe’s favorite problem country, demanded for all fiscal measures that came into action in response to the crisis will be revoked. In response to the lunacy, the ECB’s Joerg Asumussen told the German Handelsblatt that Greece’s reversal of austerity policies would lead to an exit from the eurozone. Back to square one. read article

The Queen is addressing the houses of parliament today. Topics she is expected to address are the ring-fencing of retail banks from investment banks, an exemption of the UK from EU-led bailout programs, while approving the creation of the ESM (European Stability Mechanism) and limit executive pay. Time to move to Switzerland. Furthermore, the state pension age will be raised to 67 years; needless to say, unions are against this. But that’s because they don’t understand the issues of an ageing population.

BusinessWeek has uncovered what nobody has paid attention to so far: the correlation between Greece and article

Finally, the French press reports that Sarkozy will bid politics farewell for good when he leaves office on May 15.Adieu.

So long.

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Right-wing Europe is getting scary

What you might have missed on Friday:

Christine Lagarde sat around with the Bloomberg crew proclaiming that Spain, indeed, does not need a bailout and that everybody should stop making fun of Rajoy for saying so. Morgan Stanley, more or less simultaneously, said Portugal would need a second bailout in September. Potentially confusing. Bloomberg marked Earth Day (22 April) with a tutorial in How To Destroy The Planet 101, accounting for everything from space viruses to a death star to supervolcanos. read article

Over the weekend, Europe went crazy [and it’s not over yet] and the IMF agreed to boost its funds to $430bnread article

The first round of French elections happened on Sunday, with Hollande winning 28.63% of the votes and far-right daddy’s girl Marine LePen securing a scary 18.5%. Round number two will be held on 6 May; Hollande is still expected to win. Across the border in Germany, voices are getting loud that France could face deep painful cuts of EU funds if it doesn’t stay committed to the necessary budget cuts. But more importantly, what’s the next Merkozy? More than direction or leadership (or money), this continent needs a new acronym! read article

Otherwise, the Netherlands saw some significant cracks running through its current administration on Saturday, which broke up the government officially this morning – Prime Minister Mark Rutte is expected to hand in his resignation to the queen at a meeting later today. He has been in office since October 2010. New elections will probably be scheduled for September. This will be the 5th time the country holds general elections since 2002.

The background story: Rutte’s party (VVD) needed the support of Geert Wilders’ freedom party (PVV) to push budget cuts worth around €15bn through parliament to make the budget target. Well, it didn’t happen and thus the dominoes started falling. read article

And while all that is going down, the Czech Republic will see some political changes as well, with the coalition government decided to split up, effective from this week Friday. Either, there will be a new coalitionor elections will have to be held in June. Over the weekend, the country saw the largest protest since the late 80saimed against fiscal austerity and budget cutsread article

Overall, it’s a lovely day to be European…

So long.

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