Sunday, February 26, 2012

New Week New Hope: from Greece to GDP

With the Greek bail-out restructuring going through the ‘i’-dotting and the “t’-crossing stages some attention has switched to the community action clause (CAC) and to the reality of bonds issued under different legal jurisdictions. Our comment last week addressed some issues regarding bonds issued under differing legal turns out that there is a group of Greek bonds that were issued under English law instead of local Greek law; they are trading at a much higher value than Greek-law bonds. Still getting paid may take some time.

The point that is most relevant there is that local jurisdiction bonds simply do not afford the same protections as those issued under the usual international domains. That so many bonds were issued in this way and got bought just the same is another example of how poorly thought out the euro-Zone framework really was.  And that many other EMU members have a lot of local jurisdiction bonds trading in markets represents further systemic risk.  What Greece has done, others can do… Other countries could pursue novel schemes to redress their debt issues once this Greek ‘thing’ is settled. The European debt situation is far from over and Greek has just gotten a short term fix, not a long term solution.  It’s not Re-hab; it’s a fix.
European GDP data continue to show yr/yr growth rates are decelerating across the board. But the US GDP growth is on a different pattern; it is accelerating.

The next two weeks are filled with key reports and will put the hypothesis of an accelerating US economy to a strong test.

This week offers up the first revision to the GDP released (called the preliminary GDP estimate). Several MFG surveys are on tap, the ISM the Chicago and Dallas Fed surveys. Durable goods orders, and consumer confidence from the Conference Board, round things out.   And there are important gauge on personal income, the personal spending report, and the PCE that the Fed now dual-mandate assesses. The DMA for the PCE-deflator is 2% Yr/yr. We are going to have to watch and see how the Fed handles its own shift of emphasis to the headline PCE. 

So the week sets up some interesting metrics on income consumer spending manufacturing and construction. We are impressed that a wide variety of indicators continue to show progress. We expect it will continue in …the week ahead.

Attention in this week will shift to the US after the carping dies down about the lack of progress among finance ministers this past weekend.