Good news of the last week

1. The hope rally of surplus liquidity

The most important last week was the analysis that with some patience one should have to get more glad and hopeful with the plans of central banks in the world.

The FED and ECB didn’t give instant gratification last week, but the analysises afterwards and afterwards became more positive by the day. In September it will be very likely that the FED will act. At the end of August on the congress of the central banks in Jackson Hole Bernanke and Draghi will compete who will give the most and best unconventional new means to battle pessimism and provide more liquidity (e.g. with the British Funding for Lending System). Something else is also allowed to get lower interest rates in Southern Europe without Germany becoming too angry.

The ECB opened the discussion for quantitative easing/ buying PIGS bonds in the future and only Germany objected.

[ “Over the coming weeks, we will design the appropriate modalities for such policy measures”. According to the head of the Bank of Finland (who made remarks Friday), the ECB will take control and cool market turmoil once preparations are over. “Once preparations are over, we are ready to act” (Bloomberg).]

The market seems to believe in the plans of Draghi, because the yield curve steepened considerably.

2. Economic Surprises less disappointing

Almost as much hope produced the further recovery of the Citigroup Economic Surprise Index. Some analysts even produced a buy advice for cyclicals base don this (and for the ones with a strong heart: in the previous rounds of QE automobiles & parts went up the most). Quantitative Easing is only amplifying economic trends, without those going up QE is not enough to push up markets.

3. China wants higher equity markets

In China they are following the strategy of the FED to talk up the markets when they declined too much. Lowering interest rates is not enoug. The Chinese government suddenly communicated that Chinese equities were too cheap. It was a shame they have declined 52% from top while in the same period nominal GDP almost doubled. So they lowered transaction caists and suggested business to give equities to their workers.

4. better real personal income growth and so soon also retail sales
In the US not only the housing market is improving, the mini cycle also seems to have troughed (that is why economic surprises became less negative)





The chart of Global Applied Macro research (Benderly) shows real income is improving strongly in the US. That means better  real detail sales in the not too distant future.

Anyway that should happen: retail sales are already too far below the blue trend. Even without improvement of incomes the red dotted line would rise above the blue line. Same store sales are improving now

This normally leads to a higher ISM (unless: this time is different now in Europe and a war in the Middle East etc).

5. better employment growth in the US

A growth of 163,000 is reasonable. A touch higher unemployment is not that bad, it keeps QE3 on track (or Funding for Lending).


6. Business in US is borrowing more with bonds

The bond issuance is rising nicely at the moment, a sign that credit growth is improving



7. The market is too worried about regional debts in Italy and Spain

In Spain the regional debt is already consolidated with the state debt. Movements of regions to government debt is not causng more debts.


In Italy Monti wanted to punish Sicily. It is only 0.3% of GDP and the debt is owned for 96% by the government.