Chillin' out till it needs to be funded
After the full year 2011 Current Account Deficit reported a $473 B in March, today’s data for Q1 remains a large $132 B and apparently it does not hurt the US economy much even as without Investment Income, the goods deficit has a telling effect on the currency and bond economics of the country. Q1 Trade deficit led the Current Account Deficit to a $137.1 B that could not meet estimates. Still USD’s position as a reserve currency has not deteriorated much and that will absorb much of the weakening effect of this deficit that counterbalances its impetus on growth. As growth remains illusory, however and consumers return to the gas pump, this is unlikely to reduce much from falling oil prices and grow in the bid to engender growth again and imports continue to breach the nascent recovery in the US Auto industry as imports come back into the spending charter for the US families led by the Koreans. Month on Month CPI stayed at low 0.2% in May
Amazingly as the Europeans get about trying to stem the rot and the currency starts recovering, European Core CPI and CPI data at 1.6% and 2.4% is much more healthy than US data hich nosedived to 1.7% , soon to be out of the comfort zone of the Fed and increasing more noise for QE. Core CPI remains in the end zone at 2.3%. The Koreans report trade data after the Fed’s last reports of the week,likely maintaining their first surplus of April 2012 at over $2.4 B
US Jobless claims remain in the high zone near 400k with the week’s data of 386K almost a record for these two years of the recovery and the Housing Price Index headed south again at 0.2%. By this time the Whitehouse must be getting troubled by Ben Bernanke’s voluminous ask for a fiscal discipline in the Election year as the Republicans are adamantly in your face at Obama and the $16T debt mark that we have recently hit.
Europe, IMF and the G-20 (and rating agencies and IMF)
The Euro trading at significantly above 1.25 levels could mean goods for the US Economy as Financials could really shore up their profits having tried to grow in Europe and in trading in 2012. However, Spanish yields in today’s trades hit the high watermark of 6.9% again and Italian BTP’s came home to a 5.3% yield call in the 3 year auction. Meanwhile S&P is still awarding a Investment grade rating to Spain after a double downgrade while pushing for derating of Emerging market BRIC paper from BBB in Brazil, Russia and India to junk rating.
The G20 discusses IMF’s future in the same light this week as Brazil is resolved to not increase its IMF funding till the BRIC gets more say on the board. Though Europe has promised a 2 seat reduction by August, talks are unlikely to be completed. China, Mexico, India and Russia are likely to vocally back Brazil. Consequently, Spain will still likely lose its investment rating before other actions happen as France discusses a state bailout for its current bank funding problem. Moody’s responded as much this week, maintaining investment grade ratings for BRIC and derating Spain to Baa3, its equivalent of the last rung BBB- at S&P. A further derating of the sovereign will land it in junk with Portugal and Greece. Ireland also remains at Ba1 because its banks could need more financing from its European peers but may be upgraded after a strong fiscal performance. S&P has kept Ireland at BBB+ since 2011
Meanwhile, European Banks have deleveraged to $2.2 T odd according to the latest Basel Banking report on the continent from as much as $4T in 2007
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