Friday, June 04, 2010

Welcome to Club Med, Mr Sarkozy

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…

4 comments:

melki said...

cr*p number.. not cool

checkmate said...

You were right on topic today. Indeed ,I've been pleasantly surprised by the quality of material post MM. Enough to post rather just read.

getyourselfconnected said...

Jobs number confirms pinning hopes on a US based recovery (an organic jobs and income based one anyways) is off the table. Now a full blown muti-trillion dollar stimulus forever unemplyment based surge may be at hand but that will crimp the euro's fall to parity, yes?

Nemo Incognito said...

We'll see - don't think the US has much room to move. Problem with all these FX moves is that its a zero sum game vs China and $Asia. I think we can expect to see a lot more punchiness from Europe and US on a bona fide Chinese reval from here. Brazil, Australia and other commodity exporters are pretty conflicted on this since they have a lot invested in global imbalances since Chinese excess savings/investment are what keeps demand for minerals so strong.