Thursday, March 26, 2009

Political turmoil increases on the fiscal stimulus "road to hell"

Political risk is gaining on the markets as EU president states that the US in on "the road to hell" with fiscal excess.

UK Prime Minister Brown is having a tough week with pressure both from the Chancellor Alistar Darling and the Bank of England governor Mervyn King to be more cautious concerning fiscal stimulus.

The EU President Topolanek, the Czech republic prime minister, lost a vote of no confidence. This places the EU and the Czech republic in turmoil before the G20 meetings. While we do not model political developments, this reinforces the negative credit news coming out of Eastern Europe. Negative economics calls for demands to change. This turmoil has reversed the currency improvement as uncertainty has increased.


What is going on in economic data -

Fourth quarter final GDP numbers show economy was down 6.3% and personal consumption was -4.3%

Singapore industrial production down 22.4% which is in line with other Asian countries. Hong Kong exports are down 23% which is again consistent with other large exporters.

French and German consumer confidence hovering at low levels. UK retail sales are off just under 2% for February MOM, but if there is any good news in the UK, it is the smaller decline in total business investment which had a decline a lot lower than expected.

Perhaps the most important news was German CPI in North Rhine Westphalia which is now don to zero. This eases pressure on the ECB to hold rates firm. We should expect to see ore movement to lowering rates and discussion of quantitative easing. In fact, this is consistent with comments coming from the ECB.

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