As we move into the summer of 2012, we once again find ourselves in a world of heightened asset price volatility, concerns over European governments and the Euro banking system as a whole, as well as clear economic slowing in the emerging economies.
When the real problems are masked with fake "solutions," the chickens eventually come home to roost, and we wake up to the reality that the fake "solutions" have only made things much worse.
Swiss two-year yields ended the week at negative 48 bps. Two-year yields were also negative in Denmark (-21 bps) and traded slightly negative for much of Friday’s trading session in Germany. Ten-year German bund yields closed the week at a record low 1.17%.
Dating all the way back to the day the Greek Drachma was accepted into the EU's ERM (Exchange Rate Mechanism), thus retiring Greece's currency, and replacing it with the Eurocurrency ... we have always believed that a two-tier Eurocurrency 'regime' would ultimately 'reign', once the EUR experiment failed.
It is early days in the Irish referendum count but the yes side has won. This vote brings a degree of stability to Irish finances but unfortunately it may be too little too late as it looks like the Euro project in general is in trouble and may not survive. The game has moved on and it is moving fast.
Looking at earnings last season, the technical picture, the macro environment, and the economic indicators, it looks like the stars have aligned for a correction of significant magnitude. Recent data is reinforcing that idea this week.
The market will likely be far less focused on Spain and Greece today than has been the case lately. But it will be no less worried about the domestic economic scene following this morning’s disappointing labor market reports. The revision to the first quarter GDP report was broadly in-line with expectations, but there is hardly anything positive to write about the ADP and Jobless Claims readings.
Competition is supposed to make competitors stronger, but when it comes to the battle between coal and shale gas for supremacy as the United States' power-generating fuel of choice, the rivalry instead has each commodity holding the other down.
While the world is focused on Europe another set of numbers were released today with the most important releasing tomorrow. Look for a drop in the ISM, based on weakening regional PMI’s. The jobs number on Friday could also be weaker than anticipated, that is unless the miracle workers at the BLS come up with some magical hypothetical jobs from the birth-death model.
This week will be a big week for the markets. In addition to the ongoing Euro debt crisis there will be a plethora of economic reports including six PMI reports that will tell us a lot about future economic growth. Of the 13 monthly PMI reports five have reported so far with two positive (Empire & Kansas City) and three negative (Philly Fed, Richmond Fed, and the Texas Manufacturing Survey).