NEW$ & VIEW$ (16 Nov. 2011)


How long will it last in the face of weak employment, negative real income growth and weak confidence? I don’t know but US consumers’ resiliency is a remarkable blessing for the US economy. 

Retail sales in the US surprised to the upside in October, by expanding 0.5%. Auto sales were strong as expected but excluding that category,
sales were even better at +0.6%, also topping consensus expectations. Highlighting the resilience of American consumers were the further increase in sales of discretionary items, +0.6% in the month following a 1.5% increase in September.


Assuming a flat print for inflation as per consensus expectations, retail volumes may also have grown 0.5% in October, putting real retail spending on track for annualized growth of over 4% in the final
quarter of the year.

That probably means that consumption spending, which helped support GDP in Q3, remained firm in the final quarter of the year as well. So, even though the savings rate has come down (a negative for future consumption spending), it seems that the recovering labour market is providing an offset, helping support America’s main engine of growth, consumers. (NBF Financial)

Pointing up    imageBMO Capital Markets highlights the same dichotomy I showed yesterday but their chart extends to 1985, adding to the surprising strength in spending.

Weekly chain store sales, which had been flattish in October, have strengthen in the first two weeks of November, rising 1% in week 1 and 0.3% in week 2.

Storm cloud   MEANWHILE, THE EURO BOND MARKET continues to suffer from private investors selling out. This is hardly surprising given policies forcing banks into the spiral induced by mark to market and capital ratios maintenance. In such situations, large holders don’t sell what they want, they sell what they can.  Eurozone bonds hit by mass sell-off  Investor fears spread to core countries


[EUBONDS]Turmoil Spreads in Europe  Europe’s debt troubles spilled over to top-rated nations that had been largely untouched by the crisis, including Austria, the Netherlands, Finland and France.

The difference in yields between France and Germany hit 1.89 percentage points Tuesday according to Tradeweb data—near the levels that prevailed in the late 1980s before the creation of the euro.

[SPAINHERD]The five-year credit-default swaps of Italy, Spain, France and Belgium all hit records, while the levels for Austria and the Netherlands pushed wider as well. Italian default swaps briefly pierced 600 basis points for the first time.

Few private investors appear willing to step in. As a result, many market participants believe the ECB will ultimately beef up its buying of sovereign debt to support the market and give governments the time to put in place overhauls needed to boost growth and cut debt.

Pointing up   THE ECB IS SEEN INTERVENING THIS AM:  Europe edges higher as bond yields ease  ECB intervenes to prop up Italian and Spanish debt


Punch   High five   BUT GERMANS ARE WATCHING:  Bundesbank Slams Crisis Proposals

Germany’s powerful Bundesbank Wednesday issued a stark rebuke of the euro zone’s response to the debt crisis, dismissing several recent proposals aimed at calming markets and bolstering the currency bloc’s bailout fund.

The crisis measures adopted in October by the euro zone, which included pledges to boost bank capital, provide debt relief for Greece and give the bailout fund more financial power, “are surely not the decisive and last step to resolve the debt crisis,” Mr. Böhmler said.


The Bundesbank has been one of the most outspoken critics of the euro zone’s crisis management, voicing German anxieties about carrying a disproportionate financial burden from financial bailouts. (…)

He also took a dim view of the European Central Bank’s purchases of Italian and Spanish government debt on the secondary market, calling the actions expensive and only marginally effective. The support program for those markets also shifts more risks from the private sector onto governments and their taxpayers, he said.

Mr. Böhmler confirmed, however, that the Bundesbank stands behind the euro as a currency.

Punch   EVEN THOUGH GERMANS HAVE YET TO FIND A REAL SOLUTION. They have been strong vigilantes but have proposed nothing but austerity to help the situation. Der Spiegel quotes a German leader displaying much sensitivity for “fellow“ Europeans:

“Suddenly Europe is speaking German,” Volker Kauder, who holds the powerful post of conservative parliamentary group leader, told the CDU’s annual party conference in Leipzig, in a remark that may fuel fears in some countries that Germany is becoming too dominant in the euro crisis.

Left hugRight hug   Mug   Perhaps, Germans should think of learning other Euro languages. They might understand them a little better.

The Swiss bank Pictet said Europe is sliding into a catastrophic slump with its policy mix of fiscal austerity, a credit crunch, and the lack of any lender of last resort. “The German recipe for solving the crisis is geared towards deleveraging all economic agents simultaneously. This is utopian. This policy will brutally depress aggregated demand. It is the route that led towards the Depression of the 1930s,” it said.


Mr. Geithner, choosing his words carefully, suggested the European Central Bank should be doing more. “There are lots of ways for the central bank to play a more effective supportive role…It’s not rocket science.” He said it was “very hard to get things to work” unless the ECB and European governments work in concert.




JPMorgan Chase & Co. (JPM) and Goldman Sachs Group Inc. (GS), among the world’s biggest traders of credit derivatives, disclosed to shareholders that they have sold protection on more than $5 trillion of debt globally. (JPMorgan Joins Goldman Keeping Italy Debt Risk in Dark)




Smile   French Economy Returns to Growth  The French economy returned to growth in the third quarter, official statistics showed, providing some reassurance that the country will meet its deficit reduction targets for 2011.

National statistics agency Insee said gross domestic product expanded 0.4% in the third quarter from the second quarter after a 0.1% contraction in the second quarter. According to Insee’s calculations, if there is zero growth in the fourth quarter, the French economy will post 1.7% growth for the year, only just below the government’s forecast of 1.75% GDP expansion.

The European Commission last week slashed its forecast for French growth to 0.6% in 2012, significantly below the government’s 1% forecast.



Crying face   Youth Hit as U.K. Jobless Rate Rises  U.K. unemployment rose again in October, while the number of young people without a job topped one million at the end of September, data showed.

The Office for National Statistics said its comprehensive internationally comparable measure of unemployment rose 129,000 in the three months to September to total 2.62 million, the highest level since 1994. That lifted the unemployment rate to 8.3%, the highest rate since 1996, compared with 8.1% in the three months to August.

Within that figure, the number of unemployed people aged between 16 and 24 years old—known as youth unemployment—rose 67,000 in the three months to September to total 1.02 million, a rate of 21.9%.

Rainbow   Thankfully, UK inflation seems to be slowing.  U.K. Inflation Falls to 5%

UKECONThe Office for National Statistics said the consumer-price index rose 5% in the 12 months to October, compared with a rise of 5.2% in September. The index rose 0.1% month to month. On an alternative measure, the retail prices index, the annual rate of inflation slowed to 5.4% from 5.6% in September. Excluding food, energy and some other volatile items, the annual inflation rate rose in October to 3.4% from 3.3%.


The BOE’s Monetary Policy Committee said annual consumer-price inflation is likely to fall sharply in 2012 and be below 1.5% in two years’ time—undershooting its target level of 2%.

The BOE said U.K. economic output is “likely to be broadly flat” in the fourth quarter. But growth risks in the near term are “skewed to the downside.” Weak euro-zone export markets mean trade is likely to provide only “modest support” to the economy in the coming three years, the MPC said—quashing hopes of a strong export-led recovery.



Euro Area CPI came in at 3.0% YoY for October, unrevised from the preliminary estimate. Core prices held steady at 1.6. Italy’s final October CPI was also unrevised at +3.8% YoY as higher taxes have pushed up prices.




Pointing up   BOJ Leaves Policy on Hold The Bank of Japan refrained from taking additional easing steps, but downgraded its economic assessment as its governor warned that the impact from the European debt crisis may spread.

“The Japanese economy has continued picking up, but at a moderate pace mainly due to the effects from a slowdown in overseas economies,” the central bank said in a statement. That was a downgrade of its the assessment from October, when it said the economy was picking up, without the reference to the slower pace.



Computer   [DELL]Dell’s Outlook Cautious   Dell Inc. said Tuesday that profit in its fiscal third quarter jumped nearly 9%, but revenue was flat and the company gave a cautious outlook because of the weak economy and component shortages caused by flooding in Thailand.

Dell’s mixed results largely reflect its decision to focus more on high-margin products and services for businesses. The Round Rock, Texas, company stopped selling some inexpensive consumer devices and walked away from some less profitable deals in the quarter ended Oct. 28, Mr. Gladden said. He said that Dell expects to exceed the full-year operating income target that it set in August.


Rainbow   REAL ESTATE REVIVING?   Atlanta’s Rental Rebound

(…) apartment rentals in the area are in short supply. The vacancy rate in Midtown fell to 7.2% in the third quarter from 11.4% in the year-earlier period, according to real-estate research firm Reis Inc. Selig and Daniel put unsold condos on the rental market, and executives said some of them now have a waiting list.

“Atlanta got caught up in the condo boom, but there’s a shortage of market-rate apartments,” says Steve Baile, senior vice president of Birmingham, Ala.-based Daniel. “We thought it was time to test the market.”

Buoyed by consumers who can’t afford down payments on houses or condos, the apartment sector began to rebound early last year and has emerged since then as one of the brightest spots in the real estate recovery nationwide.

Effective U.S. third-quarter apartment rents, which include landlord discounts, stood at $1,004 a month, up from $981 in the year earlier, while vacancies fell to 5.6% from 7.1%, according to Reis.


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