The worry warts are back after Bernanke’s caution in front of Congress and as we head into a weekend of PIIGS football and a Spanish bank bailout.
The market immediately hit the skids in the wake of Bernanke’s performance in front of Congress yesterday, in which the chairman kept a very low profile. The market should indeed worry if the dove of doves is walking a tightrope with non-committal rhetoric rather than double underlining his intention to keep the bears at bay – the political considerations for Bernanke will remain prominent for the next several months as he above all else seeks to avoid attention as we head towards the US presidential election in early November. It will prove a very tricky time to be doing so, to say the least.
Elsewhere, the news flow was light – European risk indicators ticked back higher again as the market mulls the coming Spanish bank bailout.
Technically, EUR/USD found resistance at an important level and if we close down well below 1.2500 today, the stance looks bearish on risk and the euro headed into next weekend. But is the Spanish bailout cause for a sell-the-rumour, buy-the-fact mentality or is it merely the next chapter in the eurozone’s long, slow political demise? Bloomberg was out with an interesting commentary piece discussing the “euro breakup precedent” of the 15-state ruble zone that fell apart in the wake of the dissolution of the Soviet Union.
China Eases
One report crossed my desk celebrating the Chinese move to ease rates as a potential boon to risk appetite. That may or may not be the case, let us just recall that, while we have been trained to respond very positively to extreme money printing measures over the last few years, the beginnings of easing cycles are usually merely a reflection of the distress being felt in the economy. The FOMC, after all, first started to cut rates in September of 2007 after flagging its intentions for some time before this. While the all-time S&P 500 high was posted in October of that year, we should all recall what unfolded. In other words, this move by China does not alter my opinion of the risks to the Australian economy from continued sluggish demand from China.
Odds And Ends
Canada’s employment data was almost perfectly in line with expectations, which is actually a fairly strong showing given that last month’s net change number was a blowout +53k and one might have been led to expect some mean reversion. The trade data for April was a weak -0.37B and we can image this will continue into the summer with the sharply weaker oil and some other commodity prices.
The US trade data continues to show very large deficits as Fed and government policy are doing everything to ensure that consumption is encouraged over saving. It’s a bit surprising considering the rebound in US oil production that the balance hasn’t improved more – though it will for May and June given the steep drop (more than 20% so far from late April highs) in crude oil prices.
UK PPI data saw the lowest input price pressures since early 2009 as the year-on-year figure slipped all the way to a barely positive +0.1% and will slip farther in the months to come if oil continues to ease lower or even stay unchanged. The output inflation was similarly at the lowest levels since 2009 – once again showing how silly it was for the market to get so worked up over the BoE’s inflation worries back in April.
Looking Ahead
This weekend we have a potential Spanish bank bailout on tap as well as key Chinese data, including the CPI, Retail Sales and Industrial Production (the April data was out at a dismal +9.3%, the worst since early 2009. For some reason, the survey is looking for a bounce for the May figure).
Economic Data Highlights
- Australia Apr. Trade Balance out at -203M vs. -900M expected and -1282M in Mar.
- Australia Apr. Home Loans rose 0.2% MoM vs. 0.0% expected
- Germany Apr. Trade Balance out at +14.4B vs. 13.0B expected and 17.4B in Mar.
- Sweden Apr. Industrial Production out at 0.0% MoM and -6.2% YoY vs. +0.6%/-4.9% expected, respectively and vs. -6.9% YoY in Mar.
- Sweden Apr. Industrial Orders out at -1.6% MoM and -9.0% YoY vs. -6.8% YoY in Mar.
- Sweden Apr. Average House Prices out at 2.083M vs. 2.026M in Mar.
- Norway Apr. Credit Indicator Growth out at 6.7% YoY vs. 7.0% expected and 7.0% in Mar.
- UK May PPI Input out at -2.5% MoM and +0.1% YoY vs. -1.6%/+1.2% expected, respectively and vs. +1.0% YoY in Apr.
- UK May PPI Output out at -0.2% MoM and +2.8% YoY vs. +0.1%/+3.2% expected, respectively and vs. +3.2% YoY in Apr.
- UK May PPI Output Core out at 0.0% MoM and +2.1% YoY vs. +0.2%/+2.3% expected, respectively and vs. +2.3% YoY in Apr.
- Canada May Housing Starts out at 211.4k vs. 215k expected and 243.8k in apr.
- Canada Apr. International Merchandise Trade out at -0.37B vs. +0.18B expected and vs. +0.15B in Mar.
- US Apr. Trade Balance out at -$50.1B vs. -$49.5B expected and vs. -$52.6B in Mar.
- Canada May Unemployment Rate out unchanged at 7.3% as expected
- Canada May Net Change in Employment out at +7.7k vs. +5k expected and +58.2k in Apr.