The current vogue in market analyst circles, when commentating on data produced by various government bodies or respected publishers, is to micro-analyse each minuscule movement and produce reams of discussion on each small variance. Whereas previously a movement of circa 0.5% would be regarded as irrelevant ‘noise’ given it could be a statistical blip or error, it’s now a pointer as to the “life or death of an economy”. Prior to the financial crash of 2008-2009 analysts and economists would look for figures of 1% per month as evidence of growth in the vast majority of the significant economic calendar releases. Now growth of 0.1% is ‘super-analysed’ and squeezed for all its worth in the mainstream media as evidence of improvement.
Most analysts, economists and commentators are guilty of not living the real world were data sets are concerned, they fail to see the ‘wood for the trees’. These micro movements are quite simply either evidence of stagnation or stagflation at best. Despite all the concern with regards to the debts of the developed economies the majority of nations in Europe and Asia/Pacific and the USA as a single entity are simply bumping along. The constant reversion to the mean appears to be a repeating pattern, that mean figure is close to zero and yet the emphasis is continually put on the decimal points of improvement. Whilst a section of news would disappear if the media en masse stated; “figures out today, looks like it’s the usual just above zero growth, ho hum” a reality check would make a welcome and refreshing departure.
So let’s look at some big numbers, hide under the table, tell me when it’s safe to come out big numbers..
Looking at the USA in isolation the often used phrase is that for every ten dollars of growth they’ve added eight dollars of debt. Eighty percent of the growth since 2009 has been ‘bought’ by increasing debts via the bond markets, bailouts, quantitative easing and or increasing the debt ceiling. In short there has been no organic growth, for the most part it’s been synthetic growth. As we discuss one data set in particular it’s worth taking a cursory glance (or long look if you’re feeling brave) at just one fact; how much, since the 2008-2009 crunch, the USA has increased its debt ce. The USA has increased its debt ceiling by on average $500 bl a year since 2003 and by 40% since 2008-2009. The latest increase on September 8th was the third increase in the debt ceiling in 19 months, the fifth increase since President Obama took office, and the twelfth increase in 10 years. However, here’s a real scary number that’ll send those who’ve peaked from under the table cloth back under, they’ve burned through that average annual amount inside the last two months..
USA Public Debt
The public debt has increased by over $500 billion each year since fiscal year (FY) 2003, with increases of $1 trillion in FY2008, $1.9 trillion in FY2009, and $1.7 trillion in FY2010. As of October 22, 2011, the gross debt was $14.94 trillion, of which $10.20 trillion was held by the public and $4.74 trillion was intergovernmental holdings. The annual gross domestic product (GDP) to the end of June 2011 was $15.003 trillion (July 29, 2011 estimate), with total public debt outstanding at a ratio of 99.6% of GDP, and debt held by the public at 68% of GDP.
GDP is a measure of the total size and output of the economy. One measure of the debt burden is its size relative to GDP. In the 2007 fiscal year, U.S. federal debt held by the public was approximately $5 trillion (36.8 percent of GDP) and total debt was $9 trillion (65.5 percent of GDP). Debt held by the public represents money owed to those holding government securities such as Treasury bills and bonds.
Based on the 2010 U.S. budget, total national debt will nearly double in dollar terms between 2008 and 2015 and will grow to nearly 100% of GDP, versus a level of approximately 80% in early 2009. Multiple government sources including the current and previous presidents, the GAO, Treasury Department, and CBO have said the U.S. is on an unsustainable fiscal path. However, ahead of predictions, total national debt reached 100% by the third quarter of 2011.
Anyhow, moving back to the safer micro figures, the Eurozone growth figures over the last quarter were as disappointing as they were static. The euro zone economy grew just 0.2 percent in the third quarter as solid growth in Germany and France was dampened by countries at the sharp end of the debt crisis and economists expect a slide into recession by early next year. Growth from July to September was the same as in the second quarter, but the outlook for the last three months of 2011 is dim, with the region’s deepening debt crisis weighing on sentiment and consumer confidence.
The European Commission expects the economy of the 17 countries using the euro to shrink 0.1 percent in the last three months of the year against the third quarter and to stagnate in the first quarter of 2012. Economists say an outright recession – two quarters of shrinking output – was now quite likely, although its length and depth would depend on the policy response to the sovereign debt crisis.
Spain, the euro zone’s fourth largest economy, ground to a halt in the third quarter. With the debt crisis set to curb activity further and the likely winners of Sunday’s general election promising to tighten the fiscal screws further, recession cannot be excluded. Neighbouring Portugal, recipient of an EU/IMF bailout, is already in recession and its slump deepened in the third quarter. Its economy shrank by 0.4 percent over the three months.
Market Overview
European equities and Italian government bonds have advanced in the morning session, the euro pared losses as Italy’s Prime Minister-designate Mario Monti finally prepared to form a new Cabinet.
The Stoxx Europe 600 Index rose 0.6 percent as of 9:00 a.m. in London. Standard & Poor’s 500 Index futures were little changed, paring a 1.2 percent decline. The euro weakened 0.1 percent to $1.3529 after earlier falling as much 0.8 percent. The yield on 10-year Italian government debt fell 14 basis points to 6.93 percent. The S&P 500 Index gained 0.5 percent yesterday. Economic reports today may show that U.S. industrial production climbed 0.4 percent in October, twice as much as the previous month.
Market snapshot at 10:15 am GMT (UK) time
Asia/Pacific markets dropped sharply in overnight early morning trade, the Nikkei closed down 0.92%, the Hang Seng closed down 2.0% and the CSI down 2.72%. the ASX 200 closed down 0.89% down 9.74% year on year. In Europe the majority of the leading viruses indices are in positive territory. The STOXX is up 1.05%, the UK FTSE is up 0.26%, the CAC is up 0.75% and the DAX is up 0.70%. The MIB is leading the charge up 1.88% and the Athens exchange index is the only laggard down 1.66%. Brent crude is flat up six dollars a barrel and gold is down five dollars an ounce.
Economic data releases that may affect sentiment in the afternoon session
12:00 US – MBA Mortgage Applications 11 November
13:30 US – CPI October
14:00 US – TIC Flows September
14:15 US – Industrial Production October
14:15 US – Capacity Utilisation October
15:00 US – NAHB Housing Market Index November
Arguably the most prominent economic data news event will be the USA industrial production figures. Figures from a Bloomberg survey of analysts predict a figure of 0.4% for this month in comparison with a previous figure of 0.2%.
