Goldman Sachs sees cyclical turnaround by year end - The Tell - MarketWatch -
Goldman expects a “relatively flat equity market” in the second quarter followed by a rise in the S&P 500 to a 1,625 by year-end led by cyclicals. — Marketwatch
Does Obama want to push granny off a cliff? - Irwin Kellner - MarketWatch -
The current CPI measures the cost of a fixed market basket of goods and services purchased regularly by a typical working household. By contrast, the chained CPI alters the weights of the items in the index to reflect changes in consumers’ buying patterns as relative prices change.
For example, if the price of meat goes up one month and the price of fish goes down, people will buy less meat and more fish. This means that their cost of living will go up more slowly, and thus their cost of living adjustment (COLA) will go up by less than it otherwise would.
But as far as seniors are concerned, the current COLA does not begin to cover the rise in their cost of living. This is because once someone retires, their expenses as a percentage of household income change.
Retirees buy fewer cars, houses and electronics — the prices of which are steady to falling — than do their younger, employed counterparts. On the other hand, they spend more on health care, food, energy and local taxes, for which prices, guess what, are actually rising faster than the current CPI. — Marketwatch
(via Portugal austerity plan frays, US loses patience with Europe - Telegraph)
China Tightening Pressure Eases With March Inflation: Economy - Bloomberg
Colombia Cites Weak Consumer Demand in March Rate Cut Decision - Bloomberg -
Colombia has cut interest rates seven times since June to the lowest among major Latin American economies, as growth cooled and the inflation rate fell to a six-decade low. The minutes leave the door open to further cuts if the central bank judge them to be necessary, said Alejandro Reyes, head analyst at Ultrabursatiles SA brokerage. — Bloomberg
(via Mexico’s new president: Sacred cows no more | The Economist)
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Mr Peña’s proposal, which his finance minister says would increase Mexico’s annual economic growth rate by one percentage point, would leave América Móvil with little wiggle room. He intends to set up a new, autonomous telecoms institute with the power to impose stiff penalties on firms that control over half their markets, or even break them up. Assuming a separate regulatory reform bill is also passed, the agency’s decisions would take effect immediately and remain in force unless reversed by a court judgment.
Moreover, the institute could implement asymmetric connection fees. That would force América Móvil to pay more to route calls to its competitors than vice versa. The plan would also scrap foreign-ownership limits and set up a state-owned “carrier of carriers”. Investors seem to believe the plan will have an impact: América Móvil’s shares fell by 9% in the three days after it was revealed. — The Economist
Mexico’s new president: Working through a reform agenda | The Economist -
Behind these reforms lies a “Pact for Mexico” struck between the PRI and the two main opposition parties in December. The Pact unites Mexico’s political parties against the unelected interests that have long defied them. As he signed the Pact on behalf of the left-wing Party of the Democratic Revolution (PRD), Jesús Zambrano declared that politicians were “outraged that de facto powers of all kinds have time and again broken governments of one party or another.”
A bigger test of the Pact will come after the elections, when Mr Peña is due to publish his next proposal, a combined fiscal and energy reform designed to realise the enormous potential of Mexico’s oil and gas reserves. The country does not make the most of these: half its oil is in deep waters, of which Pemex, the state-owned oil and gas monopoly, has little experience. The state’s milking of Pemex’s profits has left it unable to invest in the necessary technology. To wean itself off oil revenue the government will have to raise taxes, probably applying value-added tax to food and medicine. The PRI changed its party constitution last month to allow this. But polls show overwhelming opposition to taxing those essentials.
It is not clear how ambitious Mr Peña plans to be. The most timid reform would merely give Pemex the sort of independence enjoyed by the central bank. A next step would be to turn it into a state-owned company capable of entering alliances with private firms, along the lines of Saudi Aramco. Even this will require a constitutional amendment. More radical still would be fully to open Mexico’s energy market to competition. This seems to be off the table for now: Mr Peña has said that he will not privatise Pemex. Even modest reforms are likely to provoke opposition, including within the PRI (whose senators include the leader of the oil workers’ union). — The Economist
(via Mexico’s new president: Peña’s promising start | The Economist)
This objective report concisely summarizes important macro events over the past week. It is not geared to push an agenda. Impartiality is necessary to avoid costly psychological traps, which all investors are prone to, such as confirmation, conservatism, and endowment biases.
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Bull
+ A healthy trend in U.S. truck sales signals underlying strength in heavy equipment industries:
+ Global economic activity is stabilizing:
+ Stocks largely recover from triple-digit losses today despite a sub-par jobs report. The Fed is “Full Steam Ahead” with QE. The Fed will continue to aid the the recovery. Furthermore, today’s job report actually has some bright spots. Leading indicators of employment, such as temporary help employment and construction jobs, are indicating a strengthening job market and economy. “‘Jobs day’ chatter is irresistible but almost without content. Monthly jobs numbers provide imperfect portraits of the recent past, and they are very poor predictors of the labor market’s future.”
Bear
- Job creation slowed substantially in March (slowest in 9-months; Labor-force participation at 1979 levels), while corporate layoffs are 30% above year ago levels according to the Bureau of Labor Statistics and Challenger, Gray, & Christmas respectively. Moreover, an additional spike in Jobless Claims, now at 385K, and a 3rd consecutive decline in the Rasmussen Employment Index further confirms that rose-shaded glasses worn by economists need to be put away quickly. The U.S. economy is extremely vulnerable to further fiscal contraction and a weakening global economy.
- Markit’s rosy view of U.S. manufacturing isn’t confirmed by the Institute of Supply Management, which reported a significant weakening in growth in March. The index fell from 54.3 to 51.3.
- On the global front,
U.S. Stock Futures Plunge as Job Data Trail Estimates - Bloomberg
Draghi Considers Plan B as Sentiment Dims Post Cyprus Fumble - Bloomberg -
European Central Bank President Mario Draghi is under pressure to reveal Plan B.
A botched attempt to rescue Cyprus last month sent bank shares tumbling across the euro area and rattled confidence in policy makers’ ability to tame the sovereign debt crisis. With doubts growing about Draghi’s forecast for a second-half economic recovery, he’s considering his options.
They range from an interest-rate cut to a new round of long-term loans to banks, to a plan to encourage lending to companies, three officials with knowledge of the deliberations said. They stressed that such action may not be announced today.
“They have to start thinking about a plan for unconventional measures if the recovery does not materialize,” said Martin van Vliet, senior euro-area economist at ING Bank NV in Amsterdam. “It may be too early for them to do that this month, but I’d expect Draghi to acknowledge that the economy is not improving and the chances of a surprise are bigger than they were.”
With Europe entering a second year of recession and fragmented financial markets preventing the ECB’s record-low borrowing costs from reaching the countries that need them most, Draghi may prefer to use so-called non-standard measures. He is particularly concerned about a lack of credit being extended to small and medium-sized companies in countries such as Italy and Spain, two of the officials said on condition of anonymity. — Bloomberg
Merkel’s Italian Holiday Fans Europe’s North-South Crisis Flames - Bloomberg -
German Chancellor Angela Merkel’s vacation in Italy threatened to inflame Europe’s north-south tensions after she was snapped in a bathing suit by paparazzi and challenged by a regional leader to heed the economic woes around her.
Merkel’s deputy spokesman, Georg Streiter, had to respond to reporters’ questions in Berlin yesterday about whether the chancellor had witnessed “anti-German” sentiment during her sojourn on the island of Ischia, and if she had felt insulted by the video message made by the Campania region governor. Saying she felt “very comfortable” on Ischia, Streiter made it clear Merkel was unhappy about being photographed without her consent. — Bloomberg
Hollande Economic Push Threatened by Minister Account Disclosure - Bloomberg -
President Francois Hollande’s effort to ask the French to tighten their belts was dealt a blow this week after the minister he’d charged with fighting tax evasion admitted to a secret overseas bank account.
Jerome Cahuzac, who resigned as Hollande’s budget minister two weeks ago, said on April 2 that he was caught in a “spiral of lies” about the 600,000 euros ($770,000) he held in an offshore account for years. In a rare, unscheduled television appearance yesterday, Hollande said Cahuzac lied to him and the French parliament and that his actions were “unforgivable.” — Bloomberg
Fed's Williams: May start tapering QE this summer - MarketWatch -
WASHINGTON (MarketWatch)— The Federal Reserve could start tapering its $85 billion -a-month asset purchase plan by the summer, said John Williams, president of the Federal Reserve Bank of San Francisco on Wednesday. The central bank has said it would continue the purchase program until it sees substantial improvement in the labor market. “Assuming my economic forecast holds true, I expect we will meet the test for substantial improvement in the outlook for the labor market by this summer,” Williams said. “If that happens we could start tapering our purchases then. If all goes as hoped, we could end the purchase program sometime late this year,” he added. —Marketwatch.
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I feel like I’m in the minority when I say that policy makers and most investors are ignoring significant risks in the global economy. It’s as if the U.S. economy has decoupled. I remain of the view that the U.S. economy will weaken much more than many expect given a trifecta of macro headwinds (you can file the Cypriot crisis under the political crisis umbrella).
Asia Soaring Wages Stoke Inflation as Factory Costs Rise - Bloomberg -
Koda Ltd (KODA). Executive Director Ernie Koh has a message for clients in 50 countries who complain about the Singapore-based furniture maker’s first price increase in two years: Take it or leave it.
Koda’s factories in China, Malaysia and Vietnam are battling rising costs as governments in Asia increase minimum wages to curb discontent over a widening wealth gap. While weak global growth and increased competition limited the ability of producers to raise prices during the past five years, Koh says they can’t go on absorbing the additional expenses. — Bloomberg