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from MacroScope:
Euro zone week ahead
It looks like a week short of blockbusters, particularly today with much of Europe on holiday. But there will be plenty to chew over over the next few days on the state of the euro zone and whether newly-printed central bank money lapping round the world risks throwing things off kilter.
Flash PMIs for the euro zone, Germany and France for May, plus the German Ifo index, follow first quarter GDP data which showed Europe’s largest economy just about eked out some growth but nobody else in the currency bloc did. That trend is likely to be reaffirmed with the harsh winter, having curbed German activity in Q1, allowing for a rebound in sectors like construction in Q2. France and the rest of the pack are unlikely to be so lucky.
For the markets, this leaves all sorts of assets in demand since if the economy worsens, central bank largesse will stay in place for longer and could be enhanced and if recovery finally shows up, well then that’s good for stock markets at least. The only real losers so far have been in the commodities and energy arena. The 500-pound gorilla in the room is how the world economy will cope when the big central banks finally halt and even start to reverse their extraordinary stimulus policies but that looks like a question for 2014 at the earliest. Interestingly, both the IMF and Bank for International Settlements issued warnings about this on the same day.
Ten months after his pledge to save the euro fundamentally changed the dynamics of the currency bloc’s debt crisis, European Central Bank chief Mario Draghi returns to the scene of the crime (I know, that’s the wrong word for all but the hardest hardliners) – London – to deliver a keynote speech. Draghi has said the ECB is prepared to act further if the economy worsens, having already cut interest rates to a fresh record low this month. But what?
from Nicholas Wapshott:
Austerity is a moral issue
Security worker opens the door of a government job center as people wait to enter in Marbella, Spain, December 2, 2011. REUTERS/Jon Nazca
In the nearly five years since the worst financial crash since the Great Depression, the remedy for the world’s economic doldrums has swung from full-on Keynesianism to unforgiving austerity and back.
from MacroScope:
Beware the Bundesbank
German newspaper Handelsblatt has got hold of a confidential Bundesbank report to Germany’s constitutional court, which sharply criticized the European Central Bank’s bond-buying plan. This could be very big or it could be nothing.
Bundesbank chief Jens Weidmann has made no secret of his opposition to the as yet unused programme and since the mere threat of massive ECB intervention has driven euro zone bond yields lower for months there is no urgency to put it into action. But the OMT, as it is known, is by far the single biggest reason that markets have become calmer about the euro zone, so anything that threatens it could be of huge importance.
from MacroScope:
Austerity — the British test case
First quarter UK GDP figures will show whether Britain has succumbed to an unprecedented “triple dip” recession. Economically, the difference between 0.2 percent growth or contraction doesn’t amount to much, and the first GDP reading is nearly always revised at a later date. But politically it’s huge.
Finance minister George Osborne has already suffered the ignominy of downgrades by two ratings agencies – something he once vowed would not happen on his watch. And even more uncomfortably, he is looking increasingly isolated as the flag bearer for austerity. The IMF is urging a change of tack (and will deliver its annual report on the UK soon) and even euro zone policymakers are starting to talk that talk. It was very much the consensus at last week’s G20 meeting.
from Breakingviews:
New despair seeps out of U.S. employment numbers
By Martin Hutchinson
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
A new despair is seeping out of U.S. employment numbers. The economy added just 88,000 new jobs in March, according to data released by the Bureau of Labor Statistics on April 5. And the number of people counted as available to work fell to its lowest level in 34 years.
from The Edgy Optimist:
Obama sees the limits of government
President Barack Obama made the middle class the focus of his State of the Union address on Tuesday. He was lauded by some as fighting for jobs and opportunity, and even for launching a “war on inequality” equivalent to President Lyndon B. Johnson’s 1960s War on Poverty. He was assailed by others for showing his true colors as a man of big government and wealth redistribution.
Yet the initiatives Obama proposed are striking not for their sweep but for their limited scope. That reflects both pragmatism and realism: Not only is the age of big government really over, so is the age of government as the transformative force in American society. And that is all for the best.
from David Rohde:
Obama’s ‘war on inequality’
He quoted Jack Kennedy but sounded more like Lyndon Johnson.
In an audacious State of the Union address Tuesday, President Barack Obama made sweeping proposals to reduce poverty, revive the middle class and increase taxes on the “well off.” While careful to not declare it outright, an emboldened second-term president laid out an agenda that could be called a “war on inequality.”
“There are communities in this country where no matter how hard you work, it is virtually impossible to get ahead,” Obama declared in a blunt attack one a core conservative credo. “And that’s why we need to build new ladders of opportunity into the middle class for all who are willing to climb them.”
from MacroScope:
Fading productivity could hurt U.S. job growth
RBC economist Tom Porcelli is such a curmudgeon these days. Still, given that he was one of the few economists that accurately predicted the possibility of a negative reading on fourth quarter GDP, maybe it’s not a bad idea to listen to what he has to say.
This week, he expressed concern about a rapid decline in U.S. productivity – and that was before data showing U.S. nonfarm productivity fell in the fourth quarter by the most in nearly two years.
from MacroScope:
Brazil: Something’s got to give
How about living in a fast-growing economy with tame inflation, record-low interest rates, stable exchange rate and shrinking public debt. Sounds like paradise, doesn't it? But Brazil may be starting to realize that this is also impossible.
Inflation hit the highest monthly reading in nearly eight years in January, rising 0.86 percent from December. It also came close to the top-end of the official target, accelerating to a rise of 6.15 percent in the 12 months through January.
from MacroScope:
From one Fed dove to another: I see your logic
Narayana Kocherlakota, the head of the Federal Reserve Bank of Minneapolis, has made a habit of turning economists' heads. In September, the policymaker formerly known as a "hawk" surprised people the world over when he suddenly called on the U.S. central bank to keep interest rates ultra low for years to come. This week, Kocherlakota arguably went a step further into "dovish" territory, saying the Fed needs to ease policy even more. He wants the Fed to pledge to keep rates at rock bottom until the U.S. unemployment rate falls to at least 5.5 percent, from 7.8 percent currently - despite the fact that, just last month, the central bank decided to target 6.5 percent unemployment as its new rates threshold.
Kocherlakota's bold policy stance is probably even more dovish - ie. more willing to unleash whatever policies are needed to get Americans back to work - than even those of Chicago Fed President Charles Evans and Boston Fed President Eric Rosengren, until now considered the stanchest doves of the central bank''s 19 policymakers.
