NEW$ & VIEW$ (7 NOVEMBER 2012)

Obama Wins Second Term, Faces Divided Congress  Democrats Gain in the Senate While Republicans Hold on to the House

Mohamed El-Erian: Post-election déjà vu for markets?

But now that the election outcome is known, it will soon become apparent that the main risk is that investors’ prospects remain hostage to the same issues that existed long before the election. (…)

The election did nothing to heal the seemingly intractable partisan divisions in Washington. In fact, the bitter tone of the presidential contest could well encourage further polarisation.

Continued Republican control of the House and a filibuster-prone Senate suggest that President Obama will need to aggressively follow through on his economic vision while naming and shaming Congressional disruptors even more.

More of the same is likely as nothing has really changed. House Speaker Boehner said last night that “the American people made it clear there is no mandate for raising taxes.” Beware, cliff ahead!

U.S. HOUSING

 

Smile  More New Households Sprouting Up

Americans are setting up house at the fastest rate in more than six years, an indication that recession anxiety is starting to ease.

The nation added 1.15 million households in the 12 months that ended in September, according to the most recent Census Bureau data. That is a significant rise from the past four years when an average of 650,000 households were formed annually. While what economists call “household formation” is running a little lower than the average 1.25 million added annually during the boom years, the latest data nevertheless represent an important shift.

Rising household formation, which is tied to employment growth, means more students are finding jobs when they leave college, more adult children are leaving their parents’ homes and more couples feel confident enough about the future to tie the knot. It could also mean that immigration is picking up. (…)

The rise in household formation is good news for home builders, who are betting that many people will prefer buying a new place to renting an apartment. The Commerce Department reported that builders started work on homes at an annual rate of 872,000 housing units in October, the highest level of housing starts in four years.

Sandy’s Impact On America’s Holiday Shoppers  Retail sales have taken a major blow, but the pain may be fleeting.

Excluding cars, sales at retailers in New York, New Jersey and Connecticut—three of the states hardest hit by last week’s superstorm—were about 80%, 60% and 80%, respectively, of what they normally would be in the week between October 28 and Nov. 3, according to data from MasterCard SpendingPulse. Washington, DC retailers saw about 75% of their normal sales; figures for Virginia and Maryland were around 90% and 85%, respectively.

New York, New Jersey, Connecticut, Virginia, Washington, DC, Maryland, Delaware, Pennsylvania and the rest of New England represent about 25% of total U.S. retail sales. Just New York, New Jersey and Connecticut represent 15%. This East Coast/Mid-Atlantic region usually generates about $19 billion in weekly sales, and last week we got more like $15 billion, MasterCard’s Michael McNamara says.

Another gauge, research provider NPD Group’s Shopping Activity Weekly Holiday Trends Report, said visits to brick-and-mortar U.S. stores were down 7 percent in the Northeast compared with the average number of visits over the five prior weeks.

U.S. EMPLOYMENT

Despite the gains seen in U.S. employment over the past two years, and particularly in the latest month, the ‘Job Openings and Labor Turnover Survey’ (aka JOLTS) isn’t confirming that trend. The hires rate (choppy as it is), which leads private sector job growth, has turned lower in the last couple of months….certainly not a big improvement. In an ideal world, both surveys would confirm each other. (BMO Capital)

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MEANWHILE, IN EUROPE

 

It has been quiet on that front but not because things are looking up.

Clock  Spain Will Take Its Time, Says Rajoy

(…) “The most important thing is to know what it means for the European Central Bank to buy bonds on the secondary market,” Mr. Rajoy said. “Because if [borrowing] costs stay at the same level, then a [bailout] doesn’t make much sense.” (…)

In exchange for an aid request to a European bailout fund, the ECB is offering potentially unlimited purchases of short-dated bonds to bring down government borrowing costs. But it has given few details on the criteria it will use in carrying out the purchases or the objectives it will pursue. The ECB (…) will base its purchase decisions on a complex array of financial-market indicators. That makes it more difficult for leaders like Mr. Rajoy to judge the program’s efficacy.

Rajoy vows no bailout without lower yields
Remarks increase prospect of stand-off with markets

“Sometimes there is no decision more difficult than not taking a decision.”

Maybe, sometimes. But most times, it is preferable not to let markets take control. Time is clearly not working for Spain:

EU Cuts 2013 Forecast as Crisis Slows Germany

The 17-nation euro economy will expand 0.1 percent in 2013, down from a May forecast of 1 percent, the commission said today. It cut the forecast for Germany, Europe’s largest economy, to 0.8 percent from 1.7 percent. (…)

European forecasters put growth at 0.4 percent in France in 2013, more pessimistic than a French government prediction of 0.8 percent. As a result, the commission said, France will miss its target of cutting the budget deficit to the euro-area limit of 3 percent of GDP in 2013 and keeping it there in 2014. (…)

The commission warned that Prime Minister Mariano Rajoy’s deficit-reduction strategy is based on rosy economic assumptions.

Spain’s economy is likely to shrink 1.4 percent in 2013, the commission said, worse than the government’s forecast of minus 0.5 percent. The grimmer outlook will cut tax receipts and boost welfare payments, pushing Spain’s deficit out to 6 percent of GDP next year and 6.4 percent in 2014, the deadline for bringing it under 3 percent.

And here’s the reality:

Steep contractions were signalled for Spain, France and Italy in October, although the rates of decline eased slightly in each of these nations compared with one month earlier. The downturn in Germany was less severe overall, but nonetheless faster than that seen in September. (Markit)

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Contagion in the U.K….

Prospects look especially grim for October, with the PMI signalling the steepest fall in goods production for three-and-a-half years, if the drop in output due to the additional Queen’s Jubilee holiday is excluded. Recent survey data also point to a near-stagnation of the far larger services economy.

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…and in Poland:

Poland Delivers First Rate Cut Since 2009 as Growth Slows

The only central bank in the 27-nation EU to raise rates this year lowered the benchmark by 25 basis points to 4.5 percent (…).

Prime Minister Donald Tusk’s government is sticking to its 2.5 percent growth forecast for 2012, while trimming next year’s to 2.2 percent from a previously predicted 2.7 percent. Tusk warned last month that 2013 “will be another critical year, although nobody knows to what extent,” as the euro-area debt crisis continues to damp growth.

Bottom not in sight yet:

Ford may cut more Europe jobs if slump deepens

The situation in European markets remains “very volatile”, Ford Chief Executive Alan Mulally said at a conference in Berlin on Wednesday, two weeks after the company announced it was cutting 6,200 jobs and production capacity in the region.

“We don’t know whether it (European economy) will stabilize or hit bottom or not because it’s continuing to decrease,” said Mulally.

THE SEARCH FOR YIELD:

 

Bonds: New Haven for Investors

Bonds of Exxon and Johnson & Johnson are trading with yields below those of comparable Treasurys, a sign that investors perceive them as a safer bet. It could ultimately mean some companies will borrow at lower rates than the U.S. government.

imageThe soaring demand has enabled companies of all sizes to raise $1.2 trillion from issuing debt this year, already the busiest year on record, according to data provider Dealogic. U.S. corporations, now sitting on $1.73 trillion of cash and borrowing at the lowest rates in history, are arguably in the best shape ever.

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One thought on “NEW$ & VIEW$ (7 NOVEMBER 2012)

  1. hello .
    first congratulation to Obama ..to continue 4 more years ..
    the difficult is front ..we waiting for hwo easy is tto say promisis with to keep tham.
    EUROPA
    you think with buy bouns will fix?
    NO
    all the leader have somethink to say but nothing to do
    SP FR POLAND AND the rest of 27 is in truble and they know that ..
    maybe CHINE and KOREA and JAPAN will give some advice ..(is better to listening and not just this)
    USA after sandy have cut prices this is good but people there need worme electricity ..
    dealogic ….ha..
    2T..
    thank you for usefull post

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