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Monday, April 29

29th Apr - US Close: Fiscal vs Monetary, Worsening Macro

Huge post, sorry about that. With the 'death of austerity', coming central bank meetings and worries about their balance sheets, worsening macro in US and Europe, plenty of articles coming out. Coverage in the next couple of days might be erratic: about to (again) hospitalize the 'less-handsome' MoreLiver, and plenty of writing to do elsewhere. 

Previously on MoreLiver’s:

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Roundups & Commentary
Markets – Between The Hedges
Daily Interest Rate Monitor – Global Macro Monitor
The Closer – alphaville / FT
US: S&P Comes Within Whisker Of All Time Highs, Fails – ZH

Analysis - The maze behind EU "treaty change"Reuters
If there are two words that tense the jaws of European policymakers and prompt a concerned sucking of teeth, they are treaty change.

A European QE Disconnect to Come?PragCap
Japan’s Yen strategy is inherently zero-sum.  That is, if the lower Yen boosts Japanese growth then it’s essentially stealing from someone else’s growth. We’ve seen this most clearly in Europe in recent years where the weak Euro has benefited Germany and not the periphery nations (who are all current account deficit nations).  So it’s interesting to note that the decline in the Yen is hurting…Germany!

OECD Fears Euro-Zone May Snatch Defeat From Jaws of VictoryWSJ
The euro zone is at risk of snatching defeat from the jaws of victory by abandoning efforts to cut budget deficits and fix long-standing economic problems, the OECD's chief economist warned.

Increasing Likelihood of Unstable German Coalition Following Next ElectionsMish’s

The Italian MiracleKrugman / NYT
Italy is a mess. Yes, it has a prime minster, finally; but the chances of serious economic reform are minimal, the willingness to persist in ever-harsher austerity — which the Rehns of this world tell us is essential — is evaporating. It’s all bad. But a funny thing is happening [bond yields are at crisis lows]

Letta Plans to Respect EU Budget Rules as Tax Cuts PreparedBB
Italy's Letta wins confidence vote after pledging growth driveReuters

ECB Preview: Draghi very likely to cut againDanske Bank (pdf)
We think a rate cut is very likely on Thursday and expect Mario Draghi to cut the refi rate to 0.50
%. A deposit rate cut is very unlikely, in our view. The ECB might present an instrument targeting lending to SMEs. The ECB is likely to work in tandem with other institutions on this. The market is already pricing in an ECB refi rate cut and therefore there is a risk the ECB could disappoint

ECB gears up for rate cut, likely this weekReuters

European Depositors Don’t Take Fright from CyprusMarc to Market
At the end of last week, the ECB reported that bailing in of Cypriot depositors did not scare other euro zone depositors. In fact, the ECB noted that deposits rose in March across the region, including in countries that have been suggested as potential candidates for the next aid package,

Euro-Area Economic Confidence Falls More Than Forecast – BB
Economic mood in euro zone sours again in April – Reuters
German Inflation Rate Plunges to Lowest in More Than Two Years – BB

This Is What Passes For A Good Earnings Season In The "New Normal"ZH
While one can easily game expectations and quiet cut forecasts the night before earnings just to "allow" the company to beat them easier, one thing that can not be fudged are trends in time, in either revenue or EPS.

The US is heading into recessionTradingFloor
Steen Jakobsen: I have said all along in Q1 that the “real economy” is much weaker than the underlying economic data suggests and certainly considerably weaker than the survey data projects. In nominal terms the US needs 4 percent growth to avoid recession.

FOMC Preview: A softer toneDanske Bank (pdf)

The Trapdoors at the Fed’s ExitEconoMonitor
Nouriel Roubini: The exit from the Fed’s QE and zero-interest-rate policies will be treacherous: Exiting too fast will crash the real economy, while exiting too slowly will first create a huge bubble and then crash the financial system. If the exit cannot be navigated successfully, a dovish Fed is more likely to blow bubbles.

Is Monetary Policy Capable of Offsetting Fiscal Austerity?Macro & Musings
So Mike Konczal’s assessment of this experiment is that monetary policy has not been able to offset fiscal austerity. Paul Krugman  agrees as do other observers who question the effectiveness of monetary policy in a liquidity trap. I agree that there is an interesting experiment going on, but Konczal and Krugman (K&K) oversell what it means and ignore other recent developments that shed light on the efficacy of monetary policy.

Consumer Demand Cools Even as U.S. Home Market Holds Up – BB
Consumer spending rises, driven by utility costs – Reuters
Personal Income increased 0.2%, Core PCE prices up 1.1% year-over-year – Calculated Risk
Analysis: Weak Pattern in Income, but Consumers Still Spending – WSJ
Consumers Saving Less – WSJ
Spending On Services Jumps, Incomes Disappoint, Savings Rate Near Five Year Lows – ZH
Real Disposable Income Per Capita: Up Only 0.34% Year-over-Year – dshort
March Spending Driven By Surge In Services – dshort

Real spending up 0.3 percent in March, in line with expectations – Handelsbanken

Pending home sales rise in March: NAR – Reuters
Existing Home Inventory is up 12.1% year-to-date – Calculated Risk
Pending Home Sales index increases in March – Calculated Risk

Dallas Fed: Regional Manufacturing Activity "stalls" in April – Calculated Risk
Dallas Fed Implodes: Biggest Drop And Miss On Record – ZH

Q1 2012 GDP Details: Single Family investment up, Commercial Investment Low – Calculated Risk

Chinese Leverage: A Ticking Time Bomb?BCA Research
Concerns about China’s credit and banking system are overblown.

Feedback loopsmpettis
Early this month Martin Wolf had another of his very interesting articles, this time on China, which I think suggests some of the concerns we must have about the upcoming adjustment. Wolf argues that it may be useful to think about Japan as a model for understanding the adjustment process in China

China’s New PathProject Syndicate
Martin Feldstein: The opaque nature of China’s government makes it difficult to see where Chinese economic policy is heading, and thus how the Chinese economy will develop in the years ahead. But China’s new leaders have signaled where they want the economy to go, and, most important, they have put talented people in charge of the process.

Emerging Asia: At Risk of the “Middle-Income Trap”?iMFdirect

Austerity debate misses half the pointHugo Dixon / Reuters
The austerity debate misses half the point. It is true that governments, especially in the euro zone, shouldn’t chase an austerity spiral ever downwards. But they can’t just sit on their hands. They must drive even harder for structural reforms.

Market’s $20 Trillion Yielding 1% Shows Austerity MistakenBB
At a time when politicians are squeezing budgets to cut borrowing, the bond market is clamoring for more debt, pushing yields on almost $20 trillion of government securities to less than 1 percent.

The era of austerity is over (for now)Wonkblog / WP
The era of austerity began on February 5, 2010. That was when the finance ministers and central bankers of the seven major industrialized powers flew to the remote Arctic village of Iqaluit, Canada. That meeting of the Group of Seven came at a time when the extraordinary financial rescues and fiscal and monetary stimulus of the crisis seemed to have done their job and the world economy was on the mend.

Releases Q1 Earnings Early – ZH
To Raise as Much as $6.3 Billion – BB
Profit Rises, as Bank Plans to Raise New Capital – DealBook / NYT
To Sell Up To 90 Million Shares, Will Raise €2.8 Billion In New Capital – ZH
Buffers to Beat Peers’ After €2.8 Billion Boost – WSJ
At $72.8 Trillion, The Bank With The Biggest Derivative Exposure In The World  ZH
Investment bank holds firm as Deutsche performs capital volte face – WSJ
No German Jain Brings Deutsche Bank to World as Client’s Man – BB

Undoing central bank balance sheet expansionsFatasmihov
While it might not be an example for all advanced economies it is useful to point out that some central banks, such as Japan and Sweden have seen large declines in the size of their balance sheet in recent episodes (Japan in the mid-2000a, Sweden in the Fall of 2010) without any disturbance to the financial sector or interest rates.

This Week's Emerging Market HighlightsMarc to Market

The loss of simple narratives in FXalphaville / FT

About that peaking global oil demandalphaville / FT
We’ve been reading a lot lately about the potential for cheap natural gas to replace oil-derived transport fuels in the US — and perhaps globally.

Billionaires Flee Havens as Trillions Pursued OffshoreBB
More than 30 percent of the world’s 200 richest people, who have a $2.8 trillion collective net worth, according to the Bloomberg Billionaires Index, control part of their personal fortune through an offshore holding company or other domestic entity where the assets are held indirectly.

Rethinking Macroeconomic PolicyiMFdirect

Tilanne ja näkymät 2/2013Teknologiateollisuus
Teknologiateollisuuden tilaukset vähenivät selvästi. Presentaatio (videopuhe, kalvoesitys)

BoF Online 2/2013: Rahoitustransaktiovero, likviditeetti ja rahapolitiikkaSuomen Pankki (pdf)
Transaktiovero vähentäisi olennaisesti markkinoiden likviditeettiä, poistaisi likviditeettiä tuottavan markkinatakaustoiminnan lähes kokonaan sekä eliminoisi loputkin pankkien välisestä rahamarkkinakaupasta, jolloin pankkien likviditeetti tulisi hyvin riippuvaksi EKP:n fasiliteeteista. (tiivistelmä)

Kuluttajien luottamus talouteen heikkeni huhtikuussaTilastokeskus
Kuluttajien luottamusindikaattori oli huhtikuussa 6,4, kun se maaliskuussa oli 10,2 ja helmikuussa 9,6. Huhtikuussa luottamus talouteen oli alemmalla tasolla kuin vuotta aikaisemmin ja lisäksi heikompi kuin pitkällä ajalla keskimäärin.

Tältä näyttää Euroopan talouden sääennusteYLE
Näin työttömyyden, BKT:n ja valtion velan ennustetaan muuttuvan Euroopassa viiden vuoden aikana. Paina play ja katso ennuste.

Keskusta suosituin, SDP romahtiYLE
Hallituksen kompurointi sote- ja kuntauudistuksessa ja kehysriihen päätösten korjailuissa näkyy puolueiden kannatusluvissa. Vuosia gallup-kärjessä ollut kokoomus on menettänyt ykköspaikkansa ja SDP:n suosion lasku jatkuu.