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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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UK triple-dip on steroids; finance lobby fights in DC

There won’t be an update tomorrow, Wednesday, March 13th. 

In the UK, George Osborne announced that his Funding for Lending scheme, which has yet to prove effective in any way, will be extended and enhanced, in his words put on steroids. Currently geared to drive down mortgage prices, the reformed scheme will also benefit SMEs. Meanwhile, the county fears the reality of its third recessionsince the financial crisis as manufacturing output shrank again – at the fastest rate since July. read article

Over in the US, the financial services lobby is marching on Washington, much as it has in Europe, just with more funding. The matter at hand are not bonuses, but policy proposals that could lead to the forcible restructuring and breaking up of big banks. Goodbye, Citigroup, goodbye, too big to fail. read article

The Mexican government is taking on billionaire Carlos Slim, who ownes large parts of the country’stelecommunications sector. The proposal would force Slim to sell assets and open the market for foreign competitors. Upon Enrique Pena Nieto‘s election in July 2012 hopes for economic reform, particularly in Mexico’s oil market, rose. read article

Hungary passed an amendment to its constitution, allowing prosecutors to choose the judges that will hear their cases. Both Brussels and the US are skeptical of the vote and even more skeptical of the state of democracy in Hungary following the change. In December 2011, there was a letter exchange between Jose Manuel Barosso, President of the European Commission, and Viktor Orban, Prime Minister of Hungary, regarding the country’s funding from Brussels and its compliance with EU laws, showing Hungary’s drive for independence while expecting full financial backupread article

So long.

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Spanish recession gets worse; Toyota recalls 1.1 million cars

Spain’s recession deepened in Q4, when the country’s economy shrank by 0.7% compared to the same period in the year prior. Over the course of 2012, Spain contracted by 1.7%.

The Bank of Spain says the return of international investors to Spain’s battered debt market, has not translated into the real economy, although it has allowed the government to conduct a large chunk of its 2013 borrowing at the start of the year, potentially easing the pressure on it for months to come.

In the background, Catalonia requested €9.1bn in aid from Spain’s regional liquidity fund. In 2013, the region will have to repay €13.6bn of debt. read article

Yet, overall the eurozone’s economic sentiment and business climate improved, along with expectations for inflation. read article 

In the US, the Fed is concluding its January meeting this afternoon and for once there won’t be economic projections or a press conference. Maybe, after months of easing, Bernanke wants to keep everyone guessing again. After all, being predictable is boring. According to a Bloomberg estimate released yesterdayQE3 will amount to $1.14tn before it ends in Q4 2014.

In Brussels, the FT got its hands on the blueprint for the financial transaction tax regulation. The draft imposes a levy of 0.1% on stock and bond transactions and 0.01% on derivative trades and would yield €30-35bn per year.

If this design of the tax is adopted, it would mean offshoots of banks headquartered in the tax area – such as Deutsche Bank or BNP Paribas – as well as any trades undertaken on behalf of clients based in the 11 countries will be hit by the levy, even if they are trading in the City of London. Any US or Asian institutions trading securities issued in France, Germany, Italy or Spain would also be taxed.

But on the plus side, the EU has departed from its ringfencing plan, separating investment banking and commercial banking activities, because it could jeopardize Europe’s growth prospects. read article 

Things were going too well for Toyota. Despite Japan’s continuous decline and China’s war on Japanese manufacturing of any kind, the company had nudged General Motors from the pole position of global  car producers. Now, Toyota is recalling 1.1 million cars worldwide, with the majority (752,000) sold in the US, due to defect airbags. This is the third bigger recall since October 2012 and will cost the firm around JPY 5bn ($55m). read article

In other news, Obama has introduced his immigration reform plan, making it easier for skilled workers to obtain US visas, and Zimbabwe‘s Finance Minister said the country has $217 left in the bank after paying public sector salaries last week. read article

So long. 

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Monti set to resign, new stance on global internet regulation

On Saturday, Italy has crawled back to the center of attention of the eurozone blow-up. Mario Monti, the country’s unelected prime minister, announced his intended resignation following the approval of the Italy’s 2013 budgetThe FT summarizes:

The 2013 budget law is expected to receive parliamentary approval before the Christmas recess. Whether parliament is dissolved immediately and Italy heads into snap elections in early February – rather than in March or April as had been expected – depends on Mr Napolitano. The president could decide instead to ask for a vote of confidence in the government and appoint a provisional prime minister who would oversee the passage of key economic reform legislation still before parliament.

Last week Thursday, the Italian parliament faced turmoil, after Berlusconi’s party walked out of a vote on fiscal matters. Since then, rumors got louder that Silvio Berlusconi will try to return to office. He is currently being charged for relations with an underage prostitute and abuse of power (possibly related, but two court cases). In Italy, all legal charges are put on hold if an individual is running for a public office. Berlusconi had been convicted to four years imprisonment for tax fraud in October 2012, which was later reduced to one year and then to the prohibition from ever running for office again. Clearly, that has not worked out so well. But the left ranks before Berlusconi’s People of Freedom party in the polls. The Wall Street Journal spoke to Pier Luigi Bersanti, the current favorite according to said polls. read article

Japan is finding itself back in recession, after Q2 GDP was revised down from 0.1% growth to -0.1% (annualized and seasonally adjusted). Shinzo Abe, who is leading the opposition in the election on Sunday, wants unlimited monetary easing and more stimulus until the economy gets back on track. Expectations, however, point at another quarter of negative growth for the end of the year. read article

Meanwhile in Dubai, the Arab state delegation, supported by Russia and China, have proposed a

new regulatory framework for the internet. The opposition, simply put the Western world, is strongly in favor of the current regulation, which doesn’t regulate so much. read article

American and British financial regulators are working on a blueprint on how to deal with failing banks, or more specifically, failing G-SIFIs (global systemically important financial institutions). Once agreed, the new regime is meant to protect tax payers on either side of the Atlantic, while drawing on creditors and shareholders. read article

According to this Sunday’s New York Times Bloomberg is looking into buying the Financial Times, which also includes a 50% stake in The Economist. The other possible bidder is, of course, Thomson Reuters. The Financial Times Group is estimated to be worth around $1.2bnread article

So long.

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China’s new lead, Europe’s new fall, BP’s new fine

China has completed its government reshuffle and named the new members of the Politburo Standing Committee, decreasing the number of members to seven and making Xi Jinping China’s new president. He will take over from Hu Jintao in March. But hopes of a reformed and more open China in the future, were diminished by the conservative selection of PSC members. The two contesters for positions in the PSC with the strongest background in political and economic reforms, were not elected; coincidentally, two positions on the committee disappeared… read article  Bloomberg’s guide to the PSC

Meanwhile, Europe, or at least the eurozone, is officially back in recession. With both France and Germany “growing” a grand total of 0.2% in the year’s third quarter, Europe’s German engine may be heading for contraction by year-end. That’s not rock bottom of course. After all, Germany could collapse, default on its debt or implode, but it may be one of the lowest points for Europe from an economic point of view. One of them. read article

Unfortunately, the corporate world doesn’t really look any better.

BP is about the receive the largest penalty the US Department of Justice has ever filed over criminal charges for the environmental disaster triggered by the Deepwater Horizon oil spill in 2010. The fine is so large, in fact, that the number has not been disclosed yet. To date, the prize for the biggest fine goes to Pfizer, sentenced to pay $1.2bn in 2009, after illegally promoting the anti-inflammatory drug Bextra. BP put $2bn aside for legal charges; rumor has it, it will have to pay up to $1.5bn, or if you want to believe the BBC between $3bn and $5bnread article

Over at Citigroup, shareholders have submitted an official proposal for the bank’s board to consider abreakup of its retail and investment banking divisions. Citigroup’s creation in 1998 went hand-in-hand with the creation of the Glass-Steagall act, making the merging of different banking operations possible.Sandy Weill, formerly Citi’s chairman, called for a repeal of the legislation in July, fueling debates about the bank’s future. Here’s some more firewood.

So long.

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Suddenly Q4

 

And then it’s suddenly Q4: another grim earnings season ahead, as well as poor economic performance all over, the god-damn fiscal cliff and US elections, and presumably another rekindling of the European crisis, leading to a massive suspense just before Christmas to start 2013 in the same way as last year. Great. According to MarketBeat

The S&P 500 companies are expected to report contracting profits by about 2%, for the first time since 2009, according to S&P Capital IQ. That’s certainly not a good thing for stocks.

But let’s face it, what is these days… For today, we can stay tuned for bad economic news out of Germany, the eurozone as such and the US.

The first on up is eurozone unemployment, which has hit 11.4%, a[nother] new record. Otherwise, manufacturing is down in the UK and Greece is likely to see a sixth year of recession in 2013, suggesting that there will be another Greek bailout.

The big news today is that after seven month of negotiations, sweat and tears, Xstrata has finally agreed to recommend Glencore’s bid to its shareholders. The final vote will be at the end of the month. The offer remains at $33bn, but Xstarta’s board required the company’s senior management to be retained for at least two years following the merger, to ensure the project pipeline. Xstrata’s CEO Mick Davis, who is bound to leave his position, was going to be replaced by Glencore’s Ivan Glasenberg; under the new conditions, the position will be filled by an Xstrata board member. read article

Also in the wonderful world of M&A: Germany and France have agreed to give up some of their veto rights conditional upon getting a big equity slice of the EADS-BAE pie. The CEOs of the two companies involved in the £34bn merger said that neither France nor Germany would be allowed to hold more shares/rights than the average shareholder. This is mainly to to BAE’s worries about defence contract with other countries. read article

In Germany, it has been confirmed that Peer SteinbrueckFinance Minister from 2005-2009, will challenge Angela Merkel in next year’s national elections. Steinbrueck worked alongside the chancellor during the coalition government of the Christian and social democrats. In line with the technocracy governing Europe at the moment, Steinbrueck is an economist and has publicly spoken out against Keynes, stimuli, Swiss bank secrecy, private equity and hedge funds. He also wants Deutsche Bank to split its commercial and investment banking business for better risk management. Thank god all of this comes in a time of prosperity, otherwise it may comprise Germany’s competitive position. Oh no wait… read article

So long.

 

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Indicators point down, ECB discovers liberal tendencies

 

 

Back in the office from the long weekend, the week starts mixed (bad news + no news).

Spain confirmed its Q2 recession with 0.4% negative growth, Japan is seeing its economy deteriorate further and the German Ifo business climate index fell for the fourth time in a row, with expectations as low as ever.

And otherwise, well, there’s not that much going on. I assume this to be the final strides of the calm before the storm of people returning to their offices after the summer.

Apple has won a major battle against Samsung, forcing a ban on eight Samsung mobile devices that are already on the market in addition to a £1.05bn payment in damages for patent violations. Yes that’s right, Samsung-user, you may hate Apple, but it’s still the same technology you got. Not similar, THE SAME. The case is not over though, an injunction hearing will follow on 20 September. read article

In the background, RyanAir is seeking regulatory approval for its take-over bid for Aer Lingus in their mission to make the air travel to Ireland the most painful experience possible. The approval has to come from the European Commission, which will start an investigation into RyanAir’s intentions tomorrow. The June bid would value the deal at almost €700m, which Aer Lingus shareholders find ridiculous or at least not enough. read article

Meanwhile, the European Central Bank is counteracting is innate need as a European authority to support [over-] regulation and has spoken out AGAINST the strict Basel III regulation. These rules set out by the Basel committee on banking supervision concern, among other things, the liquidity coverage ratio of banks. That is, in less fancy words, how much money is to be put aside for all investments made, because you never know, the world economy might blow up. Right. That happened. So even people sceptical of regulation like myself can kind of see the point that the Basel III accords are trying to make. But the ECB, in its desperate effort to keep Europe together, is now speaking out against them, due to their impact on lending. Bizarrely enough, the Bank of France agrees (?).  read article

Also, it’s one of those weeks where we’re awaiting US GDP data again (preliminary annualized GDP growth), leaving us just about 24 hours to speculate about the markets’ reaction, Bernanke’s reaction and the impact on the presidential election.

So long.

 

 

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Bad at budgeting, countries and airlines edition

The US Congressional Budget Office estimates that the US will enter a recession come 2013, with the budget deficit reaching $1.1tn (t-r-i-l-l-i-o-n), government debt totalling 73% of GDPunemployment moving towards 9% and economic output declining 0.5%. That would push the debt to GDP ratio beyond the levels of the 50s and about double as high as five years ago. According to Bloomberg:

Congressional leaders have said they probably won’t consider until after the election the Bush-era tax cuts set to expire Dec. 31 or $1 trillion in automatic spending cuts that would begin taking effect in January. There is no sign of an agreement to avoid a so-called fiscal cliff, and the CBO report prompted partisan finger-pointing.

Enter the minutes taken at the FOMC (Federal Open Market Committee) meeting on 31 July/1 August. In a nutshell, the note show agreement that as things are still shit (see above) despite stronger retail sales and lower jobless claims, some QE is still in order. Everybody go back to being excited. read article

Meanwhile, Qantas as canceled an $8.5bn order for 35 Dreamliners, making it the largest cancellation of aircraft ever. Kind of a blow for Boeing, which has been behind schedule since the idea of the B787-9 Dreamliner has been put on paper for the first time. Its first order by All Nippon Airways was delayed by more than three years. China Eastern Airlines had canceled the order of 24 Dreamliners in fall of last year. After paying a cancellation fee, Qantas will be get $433m in refunds. The company will need it; in the year leading up to June 30, it lost AUD245m, marking a fall in profits of almost AUD500m from the year prior. read article

Otherwise, the Chinese flash PMI came in at its lowest since November 2011, supporting the more-QE-from-the-PBC thesis, while the French PMI outperformed expectations in terms of manufacturing and services. The German and overall eurozone PMI were meh, i.e. mixed, but as usual pointing towards the worse.

Finally, NYT Dealbook explains the dynamics of sovereign debt restructurings (literally any, but mostly Belize) by the example of the Maltese Falconread article

So long.

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Act four: falling action (August)

August is the month where the world goes on holiday and the rest of it grows very quiet. So quiet in fact, that the lead volatility index hit its lowest levels since summer 2007 (for 1-week and 3-month volatility). Naturally, we can’t enjoy this. Because it’s either the calm before the storm that is looming when the troika returns to Greece in September [Greece will not explode upon the repayment of €3.1bn to the ECB on 20 August, by the way.], or its boring us because we got too used to apocalyptic news. Also a nice way of putting it is this:

The market these days resembles one of those old World War II movies, the silent moment before the battle, when some buck private leans over and whispers “It’s quiet out there, Sarge,” and the grizzled veteran, eyes firmly on the battlefield, says “too quiet.”

GDP digest:

German provisional Q2 GDP showed an expansion of the economy by 0.3%.

France isn’t seeing any growth – and that’s mostly because a slight increase in baguette exports and investments have kept the economy from contracting.

Overall, the eurozone contracted 0.2% in Q2, something that shouldn’t come as a surprise. With the unimpressive German performance, this may get worse in Q3.

And in terms of policy that could mitigate the crisis or even attempt that sort of ‘decisive action’ demanded all around, there are new problems as well. The ESM, European Stability Mechanism, which still has not been entirely ratified and the implementation manual of which isn’t ready yet, has been questioned in the German Constitutional Court – again. And this time it might even get to the ECJ, the European Court of Justice, delaying the fixing of Europe by roughly a century. The first case brought about against the ESM is meant to see a preliminary ruling on 12 September.  read article

News and analysis regarding the Olympics has a strange cyclicality to it. Beginning with the ‘economically valuable or not’ back and forth, leading to the never ending forecasting of a public transport Armageddon in London, followed by a deserted city and only a modest increase in travellers on the tube, we’re now back to talking about profits; the International Olympic Committee is estimating profits worth $7bn from the games overall. According to today’s news, the score is as follows: The UK got the worst deal out of it and will be stuck in recession until 2020 (especially now that inflation rose again and cucumbers will be back at £1 in no time), while athletes are becoming millionaires by selling their souls to multinational brands.

So long.

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Facebook down, US GDP awaited

 

There is literally nothing worth reporting on today. Yes yes, the Olympics are starting and we’re still not done with earnings season. On the latter note, Facebook‘s earnings have been embarrassing, causing the stock price to slump 29%. The operating margin of the company shrank by 10% since the last quarter, while revenues rose on the slowest pace ever. read article

But there is one other thing: US GDPExpectations fluctuate somewhere between 1.3% and 1.5%, depending on which news paper you choose to believe. The actual Q2 growth rate will be announced at 830 EST and some are bracing themselves for another recession scareread articleOtherwise, as mentioned above, there’s not a lot going on. Merkel and Hollande are on a call to talk about Spain, because for some reason France is still perceived to be an established economic power in Europe that should totally have a say in all the bailout action… or maybe, it is legit after all. Here’s an assessment whether France = Greeceread article

But speaking of Greece… Officials of the troika arrived in Greece for a re-assessment of the situation yesterday, leading to the IMF calling for a complete restructuring of the country’s debt before any additional money is provided. And after Mario Draghi’s positively received “the ECB will save the euro” statement yesterday, the German Bundesbank has once more said “nein” to a potential bond buying program by the ECB. read article

Weekend reading

– Condoleezza Rice on why AmUrica is the best country in the worldread article

– Adam Davidson and the merits of off-shore taxationread article

– The Pew Charitable Trusts have issued a report on federal subsidies in nine sectors, read articleread study

– Business Insider’s 25 ways to boost your intelligenceread article

Have a good one.

 

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