Wednesday, May 4, 2011

Today's links

1--England heads for double dip, Reuters

Excerpt: Manufacturing activity grew more weakly than expected in April, at its slowest pace in 7 months, and a sharp slowdown in new orders cast a cloud over a sector that has been a rare bright spot in the UK economy.

MARK LEE, HEAD OF MANUFACTURING AT BARCLAYS CORPORATE BANKING

"The manufacturing sector has experienced an unexpectedly strong first quarter, which saw a spike in restocking, cementing the fact the industry is 'back in business'. Despite a fall in the April PMI figures, the manufacturing recovery remains on track with the figures showing growth for the past 21 months.

"The headwind now facing manufacturers, as we enter the new tax year, will be the fiscal changes impacting household spending and the prospect of impending interest rate hikes. What manufacturers now need is a steady and sustainable recovery and that certainly remains evident within our client base."

2--The greenback’s decline turns into a collapse, Globe and Mail

Excerpt: Right now the dollar is weak and getting weaker (against a basket of major currencies, it has slumped to a three-year low, and has touched all-time lows versus several individual currencies). That’s because the U.S. Federal Reserve has reiterated it has no plans to raise interest rates any time soon, giving global investors little incentive to hold assets denominated in U.S. dollars. A feeble currency has its benefits, making U.S. exports cheaper, which stimulates economic growth.

The dollar’s descent has not been “disorderly,” to use the phrase favored by currency wonks. To cause anxiety in official quarters, the dollar would have to fall faster and in a more chaotic way. Consider what happened to the Japanese yen following the country’s devastating earthquake and tsunami. Although the direction might sound counterintuitive, within days the currency had surged to a record high against the U.S. dollar, including one gigantic spike that unfolded within minutes. Such volatility prompted a co-ordinated intervention in currency markets by the Group of Seven industrialized nations....

To see if the dollar’s weakness is truly rattling investors, the best place to look is the bond market. Right now the market for U.S. government bonds is relatively quiescent, despite worries that the unprecedented efforts to fight the financial crisis will end in inflation. The yield on the benchmark 10-year Treasury bond is 3.3 per cent, a sign that for now, investors aren’t concerned about rising prices or the dollar losing its appeal as a store of value.

If global investors were suddenly reluctant to hold assets in dollars, it would cause a spike in yields on government bonds as their prices fell. “If anything roils the bond market, that would be problematic,” says Alan Ruskin, a macro strategist at Deutsche Bank in New York. “That’s the first port of call for a warning sign.”

3--Hedge funds increase bets dollar will decline, Telegraph

Excerpt: Hedge funds increased their bets against the dollar to a massive $28.6bn (£17.1bn) in advance of Ben Bernanke's historic first press conference as chairman of the Federal Reserve last week.

The sum held in short positions against the world's reserve currency on April 26 is the highest in more than month and $3bn more than the previous week.

The figures, released over the weekend by the Commodity Futures Trading Company (CFTC), indicate that hedge funds have made hundreds of millions of dollars from the recent collapse in the value of the greenback.

The dollar hit a three-year low against a basket of currencies on Friday, and has fallen for the last five months straight. It fell 3.8pc against the basket in April, and is down 7.5pc down so far this year.

The data shows that investors are pulling out of the dollar in favour of almost every other currency except the Japanese yen.

Camilla Sutton, chief currency strategist at Scotia Capital, said: "It's an ongoing build of short-dollar positions overall. Generally, sentiment remains very negative against the dollar."

4--American banks; Where's the growth?, The Economist

Excerpt: A casual observer could be forgiven for thinking it was a decent quarter, with many banks posting higher year-on-year operating profits. Yet the numbers have been flattered by a steep fall in the provisions that banks have to set aside for loans that may not be repaid, continuing a trend set in 2010 (see chart). Pre-provision revenues look a lot less healthy.

The sharpest falls in income were in investment banking. At Goldman Sachs, BofA and Citigroup, revenues from fixed income, currency and commodity trading, the main contributors to investment-banking profits over the past decade, were up to a third lower than a year ago. JPMorgan Chase stood out by containing its decline to 4%.

Last year may have been one to forget for these businesses but analysts at Nomura believe that banks will be lucky if income from them scrapes the same level in 2011....

The quarter also points to worrying trends in retail banking. Earnings are being flattered by falling non-performing loans: in credit cards, early delinquencies are the lowest for a decade, according to Nomura. But demand for loans from consumers is weak, especially in areas such as credit cards and mortgages....

5--Fed Survey: Big Banks Ease Lending Standards, Wall Street Journal

Excerpt: Big banks eased lending standards and businesses sought more loans in the first quarter of the year, though consumers remained wary of mortgages and other new debt, the Federal Reserve said Monday.

“Several large banks eased lending policies on credit card and auto loans, and the net fraction of banks that reported having become more willing to make consumer installment loans rose to its highest level since the first half of 1994,” the Fed said in its quarterly Senior Loan Officer Opinion Survey.

Big banks were most likely to ease conditions, though consumers weren’t always willing to take up offers. About one-quarter of banks reported that demand for auto loans had strengthened, but demand for credit card and other consumer loans remained flat, the Fed said.

Demand for residential mortgages continued to decline, the Fed said. Rising demand for commercial and industrial loans, meanwhile, came predominantly from large and middle-market firms, the Fed said.

“The most often cited reason for stronger demand noted by larger banks was greater demand for financing merger and acquisition activity,” the Fed said.

6--Dimming Optimism for Today’s Youth, New York Times

Excerpt: Whatever the reason, for the first time on record, most Americans said they did not believe today’s young would have better lives than their parents, according to new survey data from Gallup. In an April poll, only 44 percent expressed that view.

Several polling organizations — including The New York Times — have been asking the question intermittently since 1983. The specific wording is: “In America, each generation has tried to have a better life than their parents, with a better living standard, better homes, a better education, and so on. How likely do you think it is that today’s youth will have a better life than their parents — very likely, somewhat likely, somewhat unlikely, or very unlikely?”

The measure peaked in December 2001 at 71 percent, shortly after the terrorist attacks.

7--The Rich Drink More, New York Times

Excerpt: The rich aren’t like you and me. They drink more.

At least, upper-income Americans are more likely to report that they consume alcohol, according to a new Gallup survey (see chart) As you can see, the higher the income category, the larger the portion of respondents who say they drink alcohol.

When the survey was conducted earlier this month, 67 percent of respondents said they drink alcohol, a slight increase over last year (64 percent) and the highest share recorded since 1985.

Drinkers as a share of American adults peaked in 1976-78, when 71 percent said they drank alcohol.

8--For the US and UK economies, a lost decade looms, Dean Baker, Guardian

Excerpt: With the debate in the US shifting to deficit reduction, as in the UK, policy-makers are dooming us to a slow, jobless recovery.

Those boasting of the strong recovery have touted the fact that the unemployment rate has fallen by 1.3 percentage points since its peak in October of 2009. However, this decline is almost entirely attributable to people dropping out of the labour force, rather than people finding jobs. The employment to population ratio, the percentage of the population that holds jobs, is the same today as it was in October of 2009 and only 0.3 percentage points above the low hit last fall. In short, we have not been creating jobs at a sufficiently rapid pace to bring down the unemployment rate.

While the picture to date is bad, it is likely to get worse over the next year. The runup in oil prices is directly pulling money out of people's pockets every time they go the gas station. This could explain the fact of a sharp increase in weekly unemployment claims over the last three weeks to levels that are inconsistent with job growth.

In addition, house prices are again falling at double-digit annual rates, now that the first time buyers' tax credit has expired. At the current pace, homeowners stand to lose another $2tn in equity by the end of 2011, compared with the tax credit-induced peak reached in the summer of 2010. This will further depress consumption, as well as leading to more problems for banks due to underwater mortgages.

With the budget cutters reducing expenditures at all levels of government, there is yet another factor depressing growth. Finally, there are both personal and business tax cuts that are scheduled to expire at the end of 2011. These may be extended in some form, but if not, this will also slow growth over the next year....

9--Feel the Stimulus, streetlight blogspot

Excerpt: Last week's release of first quarter GDP figures for the US confirmed what we already knew -- the government sector of the US economy is shrinking, and this is putting a sharp drag on economic growth.

During the first 3 months of 2011 the US economy grew at a rate of only 1.8%. This disappointing figure was substantially the result of cutbacks in government spending. If spending by all levels of government in the US had remained constant, the first quarter GDP growth rate would have been about 2.9% instead....

The dollar's decline (which essentially happened from 2002 to 2008) has helped to make US exports more competitive. The improvement in the US's net export position is also a reflection of the ongoing rebalancing that had to happen after the bubble years; as individuals in the US have been gradually paying down debts and fixing their balance sheets, this has helped to reduce the international borrowing needs of the US as a whole, which translates into a smaller deficit in net exports for the US.

So, to sum up, the situation seems to be this right now: despite the best efforts of the government sector to torpedo economic growth in the US, the international sector is working hard to help sustain economic growth. It's almost exactly the opposite of what many people would have predicted a couple of years ago.

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