The Journal’s Simon Constable corralled NYU’s Nouriel Roubini ahead of Davos and the two discussed the state of American workers, the prospects for China’s economy, fiscal austerity, and the need for G20 nations to work together rather than just talk about working together.
Not much going on in the markets, today, to be honest. Investors are waiting to see if anything comes out of this G20 meeting that would either support or further undermine the dollar. Meanwhile, the earnings parade continues, with Verizon and Honeywell headlining today. Also, we take a look at coffee, and suss out whether or not you can expect to pay more for a cup of joe anytime soon (um, yes, you can.)
Is he serious? I mean, seriously, is he serious?
Ahead of the G20 meeting of finance ministers in Seoul, the U.S. Treasury Secretary, Tim Geithner, sent a letter to all his compatriots, in which he urged them to end competitive forex policies. Now, on the one hand, he’s right. All this competitive devaluation business isn’t ultimately good for anybody. It’s destabilizing. But on the other hand, it’s like..I mean…it’s…wow.
That’s like the mob calling for an end to competitive extortion, and no, I’m not comparing the Treasury to the mob. I’m saying it takes an incredible amount of gall to ask other people to stop doing something you yourself are doing, enthusiastically. The hypocrisy just jumps off the page and smacks you right in the face.
Here’s the gist of it, from Newswires’ Geoffrey Smith:
Members of the Group of 20 industrial and developing nations should “commit to refrain from exchange rate policies designed to achieve competitive advantage by either weakening their currency or preventing appreciation of an undervalued currency,” Mr. Geithner said in a letter to his counterparts in the G-20 ahead of meeting them in South Korea tomorrow.
So, no surprise here, banking stocks are leading U.S. stocks higher today, just like they are in Europe, after the Basel III committee released its proposed capital structure for banks. The main takeaway is that banks under the accord will have to put aside more of their capital for a rainy day.
The initial impression on the Street is that these new rules won’t have much effect on US banks, that they won’t have to raise a lot of capital to meet the new requirements because by and large they already meet them. Citi, Bank of America, Wells Fargo and JPMorgan are all higher, and while every sector is rising, the bank sector is rising twice as much as the next leading sector (materials as of this writing.) The S&P 500 shot through its 200-day moving average right out of the gate.
The feeling is that the rules are “manageable,” as one Citi analyst put it, and given everything these banks have been through, and have put us all through, it’s hard to avoid the sinking feeling that once again, the banks are getting off light.
“Why should Europe’s banking shares tack on a near 2% gain in early trade?” Dow Jones Newswires Alen Mattich wrote (subscription required) from London this morning. “Because the requirements will be imposed only very gently over eight years or so. And banks almost universally already meet most of the capital requirements. That’s because regulators have colluded with them over asset valuation, allowing absurdly overpriced valuations to create the illusion of strong earnings which, in turn, were tacked on to the capital base.”
The G20 has one word for you: austerity.
Dow Jones Industrials, Economic Indicators, Economy, Markets, S&P 500 / Comments Off
Stock markets mixed in Asia overnight, higher in Europe currently but off earlier highs as the euro gives back some overnight gains. So G-20 agrees it’s a good idea to cut debt? Easier said than done, ladies and gents, best of luck with that.
US economic data today include May personal income and spending at 8:30 a.m., and Dallas Fed’s June manufacturing index at 10:30 a.m. ET. Case-Shiller April gauge on home prices due tomorrow, along with Conference Board’s June consumer confidence reading. Pending home sales, June ISM and non-farm payrolls all due later in the week.
Stock futures aimed slightly higher, though higher gold, lower crude and advancing Treasurys prices suggest a measure of caution out there. S&P futures up 3.60, DJ futures up 23. Ten-year higher, yield at 3.10%.
Banks, Economy, Financials, G20, Markets / Comments Off
Leaders from the Group of 20 are gathering in Toronto to discuss the state of the global economy as markets have begun reassessing the growth outlook. Markets are also focusing again on BP, whose shares are getting another hammering as the costs of the spill continue to increase. Newswires editors Madeleine Lim and Mike Reid discuss on the Markets Hub.
This post should go under the tag of “thinking out loud.” I don’t have anything to base this on besides my sense of skepticism, but it seems to me that China’s “surprise” move on its currency peg is just a little too convenient. I’m just not buying it.
Most commentary seems to think the move stems from either one of two motivations: the Chinese are trying to squelch any criticisms at this week’s G20 meeting, or the Chinese are doing their big to alleviate the global imbalances between countries like China that are sitting on mountains of cash and countries like the U.S. that are sitting on mountains of debt. Either one, either way, generally assumes an almost benign enlightenment from the Chinese.
But what if it’s neither of those? What if something else is driving the Chinese? I’m no China expert, so I must once again emphasize that I am speculating. But what if something internal is driving the Chinese? What if it has nothing to do with the G20 or global imbalances? What if the Chinese are worried about the potential for a deflationary spiral in Europe, a big market for Chinese products, at the same time as their work force is getting more vocal? China’s had a couple of high profile strikes recently at auto plants, and of course the horrible tragedy of all those suicides at that Foxconn plant.
What is the yuan move had more to do with domestic issues than international issues?
I don’t have an answer, I’m just trying to get a thought out here. The China story just never sits right with me. I have a hard taking statements at face value from a totalitarian leadership. So when it appears the Chinese just want to play nice with everybody else, I wonder what it is they’re not telling us.
China, Dollar, Dow Jones Industrials, G20, Markets, S&P 500 / Comments Off
Stock markets around the globe storm higher following China’s weekend statement suggesting more flexibility with the valuation of its currency.
Move’s being taken as a signal of confidence in its own economy and in the global rebound, though details are kind of thin in terms of how far China will go in allowing yuan revaluation. Looks as if China’s throwing its currency critics a bone ahead of the G-20 meeting, and it’s being chased as if there’s a lot of meat left on it.
No economic data today, but the calendar this week includes May existing and new home sales, durable goods, regional manufacturing reports and final look at 1Q GDP.
S&P futures up 16.90, Dow futures up 133. Ten-year note lower, yield at 3.29%. Euro hovering around $1.24.
Banks, Dow Jones Industrials, Economy, europe, Federal Reserve, Financials, Markets, Stress Tests, Treasury Department / 1 Comment
The funniest thing you’ll hear today is this bit about the U.S. pushing Europe to publicize the results of its “stress tests.” I mean, isn’t that hi-larious? The U.S. government’s 2009 stress tests were a carefully orchestrated stage show intended to restore confidence in the banking system, not to necessarily uncover any meaningful information.
Now, at a G20 meeting of finance ministers, the U.S. is pushing Europe to stage their own show. From the Journal:
Worries about Greece’s ability to repay its debt, and concerns about the stability of Spain and Portugal, provide a sobering backdrop at the gathering this week in Busan, South Korea, of finance ministers and central bankers from the Group of 20 industrial and developing nations. U.S. officials said they are convinced that by publicly demonstrating the strength of its banks and promising to solidify those that prove weak, Europe might help stem the crisis of confidence.
“This crisis is multifaceted, but I believe bank stress tests can be helpful as a critical component of any comprehensive plan to restore confidence in the European financial system,” said Lee Sachs, who was, until a month ago, a top adviser to Treasury Secretary Timothy Geithner.
Listen, on the one hand, you have the stress tests. On the other, you have the Fed cutting interest rates to zero, the federal government pushing the $700 billion TARP program at the banks, the Fed buying a trillion and a half worth of bonds from the banks (and other institutional-type holders) and Congress pressuring FASB to drop mark-to-market accounting. Which do you think had the greater effect?