Thursday, April 07, 2011
Securities firm C.L. King's morning "Pre-market color" email contains its usual interesting tidbits. Note the very different attitude of the European Central Bank and the American Fed, as revealed below. European voters are older on average, have less debt, and are more likely to be living off savings than Americans, so they are more opposed to inflation and more in favor of higher interest rates. Everything else being equal (and it is not), these different attitudes, which transform in to policy by the power of democracy, will tend to push the value of the Euro up against the dollar for some time to come.
• As expected, the ECB raised interest rates from 1% to 1.25%, first time in three years, as inflation accelerated to +2.6%, above +2% target
• The acting Portuguese government asked the European Union for financial aid, which is expected to be about 60 to 80 billion euros and involve strict austerity measures
• Moody’s may cut the ratings of 19 UK banks due to regulatory changes that may reduce the ability of the UK government to provide future bailouts
• Bank of England decides to keep interest rates and its stimulus program unchanged at 0.5% and 200 billion pounds respectively
• Bank of Japan decides against a stimulus measure but will offer 1 trillion yen ($12 billion) in low interest rate loans to affected financial institutions
• Cleveland Fed Reserve Bank President, Sandra Pianalto, says QE2 should proceed to completion and that rates should stay low “for an extended period”
• Initial Jobless Claims reported at reported at 382K vs. 385K expected, 388K prior
• Continuing Claims reported at 3723K vs. 3700K consensus, 3714K prior
• Due at 3:00 p.m. – Consumer Credit
S&P Futures +0.21%
Dow Futures +0.19%
US Futures rise as they shrug off ECB rate hike and absorb mostly positive data on March Chain Store Sales
London +0.02%, Paris +0.43%, Frankfurt +0.17%; European markets trade higher as financial companies were boosted by the news of Portugal’s financial aid request
Japan +0.07%, Hong Kong -0.01, China +0.22; Asian markets pared earlier gains after the BOJ decided against any additional stimulus programs
Yen at 85.1835
Euro at 1.4279
CAD$ at 0.9586
The dollar appreciates against the euro as investors tried to consolidate profits before the anticipated ECB rate hike; yen strengthens as some investors believe its depreciation was excessive
10yr at 3.57%, up 2bp
30yr at 4.61%, up 2bps
Treasuries under a little pressure after ECB rate hike
Crude up $0.11 to $108.94
Investors believe oil prices will continue to rise as demand keeps increasing and supply is unable to keep pace; China raises fuel prices 6%
The hot story of the day is the imminent shutdown of the federal government.
Typically Obama's community organizer playbook calls for him to use proxies to create trouble, then for him to step in to mediate a progressive settlement. But not here.
Boehner is negotiating with a Tea Party bayonet to his back, and so can't concede on anything right now. Obama knows this, but wants the shutdown to help launch his re-election bid. Obama wants to run a simple theme in 2012: Republican meanies want to stop many deserving people from continuing to get government checks ... because they refuse to raise taxes on the rich. He thinks a government shutdown will spotlight how the Republicans want to take things away from the people, instead of Shared Sacrifice ("someone else pays").
But this won't be a replay of 1996. Back then Gingrich overplayed, Clinton had charm, and we weren't living through The End of the World As We Know It.
A Modest Proposal: During past shutdowns, furloughed federal workers didn't get paid during the shutdown, but got paid retroactively later out of the goodness of Congress' heart. I say not this time. I'll be damned if they get a week or two's snow holiday in April. Fuck 'em. Seriously, they need a wake up call to reality.
"... the looming political fault line is between those who get government checks and those who pay for them"