"...In what will be the event of the week in my view, Germany's
Constitutional Court is set to rule on the legality of the seemingly endless
bailout pledges made by Merkel. I have no idea what the result will be, but if
they rule against the bailouts, that would be Europe's version of a Lehman
moment. Next on the docket you have Italy which has recently
been softening its austerity program. Berlusconi needs to show increased
leadership by solidifying his pledge towards consummate austerity in an effort
to improve his country's finances. Financial markets have recently taken notice
of these negative developments. Investors knew that the jobs report wouldn't be
pretty, however, yesterday's large selloff was actually due to renewed euro zone
jitters imho.
In the US, one cannot ignore how disappointing the jobs report was. It explicitly shows that the US economy has stalled and makes Obama's speech next week all the more important. I would venture to say that if next week produces a negative surprise on the Eurozone front, the US economy will be contracting by October. While we did have good news in the form of consumer spending and factory orders, these were data points taken before the most recent round of financial turbulence. September may yield even more disappointing economic metrics as the exogenous shock of a global financial sell-off is reflected in the data. The disappointing jobs number also brought renewed speculation on QE3. I remain of the view that quantitative easing will only be used as a measure of last resort given that inflation remains too high. I don't think the program will be initiated in late September or even November if the Eurozone doesn't blow up, but perhaps in December. If the Eurozone does blowup, all bets are off. I'll be focusing on Bernanke's speech on Thursday.
Despite the gloomy week, I actually did see some significant good news, which came in the form of China's PMI number. So far, their economy seems to have withstood tightening measures. A soft landing in the communist nation would catch many, including myself, off-guard and would be a huge positive for global risk markets. The internals of the report though are cause for concern. The export subcomponent is in contraction and we all know how important exports are to the Chinese economy. Continued weakness in exports would no doubt provide a significant headway in for further growth (once again if the Eurozone blows up, it would result in a negative chain reaction across the entire global economy). Furthermore, inflation still seems to be the primary danger in the eyes of officials. Whether this means another rate increase remains in question. The Yuan has been appreciating at an accelerating rate and is sure to continue after Wen's comments."
at http://www.zerohedge.com/news/weekly-event-summary-and-look-europes-upcoming-lehman-moment
In the US, one cannot ignore how disappointing the jobs report was. It explicitly shows that the US economy has stalled and makes Obama's speech next week all the more important. I would venture to say that if next week produces a negative surprise on the Eurozone front, the US economy will be contracting by October. While we did have good news in the form of consumer spending and factory orders, these were data points taken before the most recent round of financial turbulence. September may yield even more disappointing economic metrics as the exogenous shock of a global financial sell-off is reflected in the data. The disappointing jobs number also brought renewed speculation on QE3. I remain of the view that quantitative easing will only be used as a measure of last resort given that inflation remains too high. I don't think the program will be initiated in late September or even November if the Eurozone doesn't blow up, but perhaps in December. If the Eurozone does blowup, all bets are off. I'll be focusing on Bernanke's speech on Thursday.
Despite the gloomy week, I actually did see some significant good news, which came in the form of China's PMI number. So far, their economy seems to have withstood tightening measures. A soft landing in the communist nation would catch many, including myself, off-guard and would be a huge positive for global risk markets. The internals of the report though are cause for concern. The export subcomponent is in contraction and we all know how important exports are to the Chinese economy. Continued weakness in exports would no doubt provide a significant headway in for further growth (once again if the Eurozone blows up, it would result in a negative chain reaction across the entire global economy). Furthermore, inflation still seems to be the primary danger in the eyes of officials. Whether this means another rate increase remains in question. The Yuan has been appreciating at an accelerating rate and is sure to continue after Wen's comments."
at http://www.zerohedge.com/news/weekly-event-summary-and-look-europes-upcoming-lehman-moment
