The week ahead

Following Friday’s lower than expected 80,000 jobs added to the U.S. economy in June President Obama responded to the jobs report by saying that it is a “step in the right direction” but still missed most expectations. 

The 80,000 new jobs added to the U.S. economy is far less than the 200, 000 needed to bring down the 8.2 % unemployment rate.

Sustained increases of around 200,000 jobs a month are needed to bring the unemployment rate down one percentage point over a year, according to Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut.

According to a new Rasmussen survey, which was released last week before Friday’s released June’s jobs report, just 31% of likely voters believe President Obama is doing a good or excellent job handling economic issues, including 12% who say he is doing an excellent job.

Forty-eight percent (48%) believe Obama is doing a poor job in this area.

Concerning the U.S. economy and its future impact in the upcoming November election, 74 percent of likely voters ranked it as a “very important” issue, the highest ranking for any single issue.

The survey of 1,000 likely voters nationwide was conducted on June 25-26, 2012 by Rasmussen Reports.

The slow pace of debt resolution in the Euro area coupled with a slowdown in China and Brazil, are impacting global investor confidence in the markets.

Many investors still view the American economy as one of the fewest bright spots on the global stage.

But the latest June jobs (non-farm payroll) report combined with weaker data in manufacturing, retail, and service sectors that shows that America’s economy remains fragile despite experiencing recent lower oil costs which typically aid discretionary levels in the U.S. economy and support the business community.

On Wednesday minutes from the Federal Reserve will be released and economists are expected to comb over the document to find any slivers of hope that the Federal Reserve may be prepared to expand their balance sheet and engage in quantitative easing (QE3) alongside their latest easing measure “Operation Twist” which was re-launched last month and involves the Fed Reserve buying longer term securities for the remainder of of 2012 to drive down longer term borrowing costs.  

The first “Operation Twist” began last September and ended last month. It involved the Fed buying $400 billion in long term Treasuries and selling a similar quantity of short term Treasuries (bonds).

Under the second round of “Operation Twist” announced last month, the Fed will transfer an additional $267 billion to longer term Treasury securities to drive down long term rates and spark more business investment in areas such as home purchases and factory development.

Another important report that will be closely read on Wednesday concerns one that deals with the U.S. trade balance.

The latest report from the U.S. Import and Export Price Indexes (Bureau of Labor Statistics), a measurement of changes in prices of goods and services that are imported or exported, will shed more light about how American exporters are negatively impacted by slowdowns in Europe and China.


New economic data from China this week concerning GDP, retail sales, trade balance, and inflation will provide further data about the health of the overall Chinese economy.

Economists are expecting China to report year over year GDP growth of 7.6 percent, versus an 8.1 percent yearly gain in the first quarter.

Euro Area

 Testimony by ECB President Mario Draghi to Europe’s parliament on Monday will be analyzed following a meeting of euro zone finance ministers.

Italian and Spanish borrowing costs rose again last week which is a bearish sign for the markets. The 10 yr. Spanish yield in particular will be closely followed this week.

Bloomberg  reports that French Finance Minister Pierre Moscovici said Spanish banks need to be re-capitalized quickly.

“We have to move quickly on banking supervision and we have to move quickly on the direct recapitalization of Spanish banks,” Moscovici said earlier today in Aix-en-Provence, France.

During the EU Summit at the end of June, Euro area leaders agreed to allow their bailout funds (ESFS and soon to be ESM) to directly re-capitalize European banks rather than being disbursed through the sovereign countries which come with strings attached such as imposed austerity measures.

Euro leaders also warmed to the concept of wider banking supervisor for their banking system, likely run through the ECB.

New polling data released by German based Spiegel shows that Germans oppose further euro crisis bailouts.

Germans are worried about the crisis and the response by the German government, mainly due to inflationary concerns. 

The majority of Germans are in favor of euro area members having their budgets more strictly controlled by a centralized European authority, such as a European finance minister.

Concerning the survival of the Euro currency, 54% of Germans believe that Germany should not continue to fight to save the euro if it has to provide additional billions in aid.

Supervision needed

On June 8thU.K. based Guardian wrote an article titled Spain’s savings banks’ culture of greed, cronyism and political meddling which highlights some of the fundamental problems underlining some of Spain’s banks which are deeply underwater due to the real estate bubble which began in 2008.

According to the Guardian article, “court investigators are also scrutinising payments to former senior executives and the part-flotation of Bankia, in which 350,000 small investors saw two-thirds of their money wiped out.”

In some of the banks, senior executives shortly before their banks collapsed and decisions taken by unqualified board members later admitted they were “incapable of analyzing the banks’ books.”

Boards were filled with political placements or people who had little understanding about banking.

The boards included in one case, having a board member who was a supermarket checkout worker. The boards were also known for rubber stamping decisions.

“Trips to India, China or Chicago and the hundreds of millions of euros in loans to executives, board members and their families formed part of the gravy train of political favouritism and cronyism. Chairmen were often unqualified politicians, with academic investigators finding a close relationship between the size of a bank’s bad loan book and the inexperience, lack of qualifications and degree of politicisation of the chairman” according to Guardian.

Cronyism and corruption became a way of life for some Spanish banks.

“Over six years, board members and senior executives – or their families – received €161m in loans, often at soft interest rates, according the Workers Commissions trade union. Senior executives doubled their salaries over the same period” according to the Guardian.

* Correction: earlier today, the word “analyzed”was misspelled in this post.



About Johnathan Schweitzer 1618 Articles
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