Every now and then, we take a look at why the US housing comeback continues at a pace that has disappointed those of us who believed (and still hope) that a rebound in household formation will produce a self-sustaining acceleration in the broader recovery.
After the release on Thursday of disappointing housing starts but encouraging building permit numbers for April, we’ll do so again now. Start with this helpful chart from Capital Economics: Read more
FURTHER FURTHER READING
- Central bank competence is a technology. Read more
Japan’s economy grew at the fastest pace in a year last quarter, with solid growth in consumer spending and exports suggesting the expansionary policies of Shinzo Abe, prime minister, are delivering quick and tangible results.
Government data on Thursday showed that real gross domestic product increased by 0.9 per cent in the three months to March, or 3.5 per cent in annualised terms. It was the second consecutive quarter of growth, after a rise in October-December that the government revised upward to 1 per cent.
That’s from the FT’s Jonathan Soble.
Of course, quite a lot happened after the end of Q1 as well. Read more
FURTHER FURTHER READING
- Why investors can’t imagine a collapse of the bond market. Read more
The “danger zone” referenced in the chart above by Lewis Alexander of Nomura is a kind of arbitrary area between the Fed’s owning 50 per cent of the outstanding stock of Treasuries in a certain category (and thus potentially starting to affect market liquidity) and the 70 per cent threshold at which the SOMA desk will stop buying outright.
As you can see, it will be a little while yet before the Fed approaches that threshold, even if it increases purchases to $65bn a month. Read more
Gavyn Davies has a great post looking at the recent work by Fed researchers and the Goldman Sachs economics team on trends in US labour force participation and their implications for US monetary policy. See also Robin Harding last month.
To recapitulate, the US unemployment rate has continued to decline steadily, and at its current pace would hit the Fed’s 6.5 per cent threshold to begin raising rates by roughly the middle of next year. Read more
ROUND-UP
Equities pause as focus shifts to FX: “Wall Street’s run of record highs finally came to an end as the focus shifted to the currency markets following the dollar’s first break above the Y100 level for four years. The dollar’s move came against a backdrop of increasing policy accomodation from the world’s central banks, most notably the Bank of Japan and the Federal Reserve. The data did little to bolster US equities as signs of fatigue began to show following five successive record closing highs for the S&P 500. The index fell 0.4 per cent while the FTSE Eurofirst 300 index closed a fraction lower, and the Nikkei 225 Average in Tokyo fell 0.7 per cent. Gold lost ground. with selling on the back of the claims data accelerating as the dollar strengthened. The metal fell $16 to $1,457 an ounce.” (Financial Times) Read more
There was big news early Thursday morning when Fannie Mae announced that it will be paying the Treasury a whopping $59.4bn dividend, just a day after Freddie Mac announced a more modest but still welcome $7bn payment.
The big payout is mainly a result of Fannie’s recognition that it will be profitable enough in the future to possibly using some $50bn in deferred tax assets — or as it writes in its earnings announcement: “Release of Valuation Allowance on Deferred Tax Assets “. Read more
Something that missed our radar back in March was the Federal Reserve’s proposal to allow systemically important FMUs (financial market utilities) to establish accounts with the central bank and thereby get paid interest on their reserves, much like the primary dealers.
This sounds unsexy as it is, but the quick background here is that the Dodd-Frank bill empowered the Fed to supervise those FMUs that are designated systemically important by the Financial Stability Oversight Council. And along with the added supervision, those FMUs would be allowed to open the reserve accounts with the Fed. Read more
ROUND-UP
FT markets round-up: “Encouraging macro data releases from China and Germany offered further support to equity bulls as global stock indices climbed to fresh cyclical highs. Chinese export growth picked up to 14.7 per cent in the year to April from 10 per cent in the previous month, while imports rose 16.8 per cent last month from a year earlier. And there was no stopping Wall Street’s march to fresh peaks, as the S&P 500 rose 0.4 per cent – its fifth successive advance. In Tokyo, the Nikkei 225 climbed 0.7 per cent to a five-year high, while the Shanghai Composite index rose 0.5 per cent, its fourth advance in a row. In spite of the renewed strength in equities, highly rated government bonds attracted demand, with the German market helped by a strong auction of five-year debt. The yield on the 10-year German Bund fell 3 basis points to 1.27 per cent, while that on the equivalent US Treasury was 1bp lower at 1.77 per cent after a tepid auction of 10-year paper.” (Financial Times) Read more
For the commute home,
- A call to end the Troika in European crises. Read more
… doesn’t exist, but it would have underperformed the past year:
A Financial Times analysis of last year’s tips shows decidedly mixed results. An investor who followed every top idea from the 12 speakers last year would have made 19 per cent, less than the 22 per cent gain available from a passive index fund tracking the US stock market. Read more
(Charts via Capital Economics.)
The trend is consistent with what appears to be a spring slowdown in global growth. It’s probably worth noting that the wild fluctuations in the headline rate have had only a muted impact on core inflation in the past decade. Just something to keep in mind when you start hearing calls for policy action at the first hint of commodity price gyrations. Read more
The chart is from a recent Barclays report on global trade. Read more
ROUND-UP
FT markets round-up: “Stocks on Wall Street resumed gains and traded at fresh record highs after a lacklustre session in Europe in thin holiday markets. The S&P 500 rose 0.2 per cent to 1,617.50, after a record-setting week, which saw it breach the 1,600 level and close at all-time highs, supported by an upbeat US jobs report on Friday. But moves in Europe were less impressive. The FTSE Eurofirst 300 slipped 0.1 per cent as an index of eurozone services showed contraction for the 15th consecutive month. The PMI data for both manufacturing and services in the eurozone were not as bad as traders had expected, however, and pared losses for equities. The euro fell 0.3 per cent against the dollar after Mario Draghi, European Central Bank president, said the bank was “ready to act again” if economic indicators continued to disappoint.” (Financial Times) Read more
The FT’s Peter Spiegel has the latest take on Slovenia this afternoon, highlighting the fractiousness of the country’s internal politics:
According to two senior eurozone officials, concerns have focused on “non-cooperation” between Slovenia’s finance ministry and central bank, which is responsible for supervising the financial sector. One of the officials said the central bank was being “obstructionist” towards the new government’s clean-up efforts. … Read more
The chart above shows the decline in Spanish bond yields “occurring at a time that Spain has announced that it had not hit its deficit targets and would not hit next year’s,” as David Watts of CreditSights points out. Read more
Chart via Carl Lantz of Credit Suisse. Read more
Fed governor Dan Tarullo’s speech Friday on bank capital and regulation could well invigorate the same amount of public discussion as Jeremy Stein’s speech on the role of monetary policy and asset bubbles did.
Tarullo’s comments that the Basel III leverage ratio was perhaps “set too low” and that he might prefer tougher capital standards for the largest banks are likely attract particular attention. Read more
The post-winter slowdown that the US has experienced the past three years had been showing signs of re-emerging in 2013, but Friday’s employment report complicates the story.
The BLS announced that payrolls climbed by 165,000 in April, but perhaps more importantly the revisions to prior months revealed that February and March were better than originally thought, having created 114,000 more jobs than had been posted in the earlier reports. The February revisions brought the total for that month to an impressive 332,000. Read more
ROUND-UP
FT markets round-up: “Fresh evidence of slowing global growth prompted further falls for industrial commodities, US stocks and the dollar, and gains for Treasury bonds, even as the Federal Reserve backed away from previous hints that the pace of its asset purchase programme might be curbed. Copper fell 3.7 per cent in London to $6,795 a tonne while Brent crude oil settled $2.42 lower at $99.95 a barrel. Gold, meanwhile, fell $20 to $1,456 as it suffered a significant interruption to its rebound from a recent two-year low. Equity trading, was thinned by holiday-related closures in many financial centres, including much of Europe. There also appeared a general reluctance to take on new positions before the European Central Bank announces its decision on interest rates on Thursday. The S&P 500 fell 0.9 per cent from Tuesday’s record high. while the FTSE 100 in London rose 0.3 per cent. The caution on growth triggered a strong session for US government bonds with the yield on the 10-year Treasury down 4 basis points at 1.63 per cent, having earlier touched a six-month low of 1.61 per cent.” (Financial Times) Read more
During the presser following the March FOMC meeting, Ben Bernanke made two comments suggesting that its communications policy regarding asset purchases would shift in the direction of its policy for interest rates.
With apologies for rehashing lines from an earlier post, in case anybody would have noticed… Read more
Two notable changes from the March statement:
– The FOMC writes that it is “prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes.” Read more
Ahead of the Thursday meeting, a chart via Gavyn Davies (full post recommended, of course): Read more
Barclays economists write that the gap between core CPI and core PCE in the United States has widened to its largest in about a decade. They have an interesting note explaining some of the reasons why, though not all of them are clear and right now this is mainly an academic issue:
People outside of Wall Street might reasonably complain that economics coverage often focusses too much on the numbers to the exclusion of clear explanation and stories about Main Street, the impact on “real” people, etc.
There are several possible ways to remedy this problem where it exists, but a group of Republicans has skipped the niceties and decided that it would be better if said coverage was entirely anecdotal and number-less. Because the numbers would not exist. Read more
So people are wondering if Slovenia will be the next eurozone crisis focal point. I can find Slovenia on a blank map, so we’re off to a good start. But how about some background?
Stop me when this sounds familiar. Read more
Obviously it’s important to know the extent to which household debt reduction in the US has come from voluntary decisions versus how much has come from involuntary charge-offs.
The knowledge leads to a better understanding of inequality trends and measurement problems.
But within the more limited realm of voluntary debt reduction, it’s also helpful to explore the ways in which competing circumstances can influence households’ decisions to save and spend. Read more
Older entries
1Bird, plane, Abe
2The US collateral shortage lives on
3Alphachat: Lee Buchheit edition, featuring Lee Buchheit
4The (early) Lunch Wrap
5Re-setting ENRC (updated)
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