May 1. Flatter curve, lower vol. RBA cuts 50 bps…more than expected
RBA was expected to cut by 25 bps but went 50 (to 3.75). China PMI was 53.3, slightly less than expected. Today’s US news includes ISM expected 53 from 53.4 last, and there are several Fed speakers. Chicago PMI yesterday was much weaker than expected. The grinding trends in the interest rate market continued, with a flatter curve and lower vol, signaling a sluggish economy at best. The economic data is coming in weak, not just Chicago PMI but the Dallas Fed Bus Activity was -3.4 from 10.8. And the Chgo Fed’s Nat’l Index last week was very soft. I have a hard time seeing tens get back much above 2% even if there is a surprisingly strong employment report Friday, though there are cheap puts for anyone itching to play the downside. Fed speakers yesterday including SF Williams and (not surprisingly) Dallas Fisher showed little inclination for more accommodation, a theme that will likely be sounded again today.
–This isn’t new, but still eye catching: Erskine Bowles “explained that 100 percent of the tax revenue that entered the Treasury in 2011 went out the door to pay for mandatory spending — such as Medicare, Medicaid and Social Security — and to pay the interest on our staggering $15.6 trillion national debt.” …That means that every single dollar we spent on everything else, including two wars, national defense, homeland security, education, infrastructure, high-value-added research and the like, was borrowed. “And,” he warned, “half of it was borrowed from foreign countries. And that is a formula for failure in anybody’s book.”
http://www.huffingtonpost.com/2012/04/30/erskine-bowles-economic-crisis_n_1464999.html?ref=business
