July 27. Q2 GDP today, FOMC next week

–Draghi upped the commitment of the ECB to save the euro, sending risk assets higher. However, the curve was only slightly steeper in the US. Red/gold pack up just over 2 bps 110. The fact that responsibility for solving economic problems has fallen almost completely to the central banks probably doesn’t do much for business confidence. Wanton expansion of CB balance sheets may drive up prices, but it doesn’t necessarily lead to hiring. This snippet from BofA is instructive though it refers to an inflation target: “In his recent H-H testimony, Bernanke argued that raising the inflation target was unlikely to pass a cost-benefit analysis: ‘I am very skeptical that it would increase confidence among businesses and households and increase economic activity. I think it could create a lot of problems in financial markets as well.’ ”
–German bund has weakened the past several days perhaps an early omen that teutonic resolve to price stability will be eroded as more euro institutions do an end around the Bundesbank.
–Interesting chart compares shows high correlation between economic activity and garbage shipments, the latter of which has recently plunged (less purchasing, less stuff to dispose of). http://www.businessinsider.com/chart-of-the-day-the-us-garbage-indicator-economy-2012-7
–It’s not just CA: (Reuters) – Miami officials, who are seeking $40 million in union concessions, plan to declare “financial urgency,” which would allow the Florida city to unilaterally alter employee contracts, the Miami Herald’s website said on Thursday.
–Today’s news includes Q2 GDP expected +1.2%. Pressure is building on the Fed to announce open ended QE at next week’s meeting. I would suspect a bit more profit taking in US fixed income in front of FOMC given the relentless rally we’ve had.
–GM stock has trended lower the past few months, from around 27 in March to 19 currently. (Detroit News) “GM’s low stock price has prevented the Treasury from exiting the automaker. It still holds 500 million shares of stock in the company as part of its $49.5 billion bailout, or a 32 percent stake.
It needs about $53 a share in order to break even on its GM bailout. At current prices, it would lose $17.25 billion on the bailout.

Posted on July 27, 2012 at 5:11 am by alexmanzara · Permalink
In: Eurodollar Options

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