Friday, June 04, 2010
Friday has come at last and not a day too soon… As the market collectively holds its breath in preparation for a miracle, Team Macro Man can’t help feeling somewhat skeptical. Quo vadis, Mr Market?
The past few weeks have amply demonstrated that (may the philosophers world over forgive us for taking liberties with a classic) “the life of a punter, solitary, poor, nasty, brutish, and short”. The catalyst, of course, had been provided by the sovereign debt issues of the not-so-United States of Europe. In spite of the authorities the world over seemingly having thrown everything, including the kitchen sink at the problem, the market seems to have gone back to square one in the past couple of days. The panic in the EUR periphery not only continues unabated, but is now spreading to “soft-core” countries (Austria, Belgium, Finland) and France (welcome to the Club Med, Mr. Sarkozy). Other stories have begun to circulate that cast doubt on the very viability of the European banking system. Furthermore, rumours of large derivative losses at French banks (chart below: Eurostoxx Bank Index) are surfacing first thing this morning (Team Macro Man doesn’t really understand why this is so shocking; they have always believed that this is just the annual fee the French banking system pays to the Grande Ecoles). All this makes yesterday’s pithy “Hmm…” on the subject of Portuguese banks look, well, prophetic.
Now all this makes the upcoming payrolls print something of a worry. It somehow feels that the entire world is pinning its hopes on the miraculous recovery of the US economy. While we have certainly seen symptoms of improvement (see the below PMI chart that is weighted to take into account small businesses as well as the main ISM/non-manufacturing ISM surveys), driven by the inventory restocking, this “recovery” hasn’t exactly translated into a broad-based surge that can save the world. What happens if, god forbid, there’s a stumble? Inquiring minds want to know…