The U.S. jobs figures and their effect on the presidential race were a flash in the pan. Although they made it to the front pages over the weekend, with “Poor jobs data hit Obama campaign” in the Financial Times (FT) and “Jobs Data Weigh on Obama, Fed” in the Wall Street Journal (WSJ), they got bumped into nonexistence on Monday.
The big stories on Monday are the pending threats to the eurozone, the German Constitutional Court decision and Dutch elections on September 12, and the slowdown in China.
Coverage of the European issues actually started over the weekend. The FT had three such articles on page 2, the most noteworthy of which was “Berlin attacked over Draghi bond move,” about the growing German political opposition to further bailouts of other countries. The WSJ had “Merkel Bucks German Anger, Backing ECB Bond-Buy Plan” (p. A11), which makes roughly the same points. On Monday, the stories continued with “Twin threats to Eurozone recede” and “Finns warn on Greek bailout” on page 2 of the FT, “Europe Plan Faces Threat in Germany” on page B1 of the New York Times (NYT), and “Bailout Fund Has Court Date” on page A14 of the WSJ.
As I have discussed before, the eurozone is at great risk, subject to politics on the ground in Germany—probably the biggest threat—as well as to the pending German court decision and the Dutch elections. The time has come; this will be a big week for the euro, one way or the other. With Germany having to make an explicit decision—pay-to-play or don’t—the fudging may be just about over. Based on the articles, the decision does not appear to be clear-cut. In fact, an editorial in Monday’s FT, “Why Weidmann is winning the debate on policy” (p. 9), does a good job of laying out how the pro-euro factions in Germany appear to be losing the debate. I expect the court to approve the rescue mechanisms so far, and I also expect it to impose conditions on the bailouts. What this article says to me, though, is that even if the court approves the rescue mechanisms and does not impose conditions, Germany has gone as far as it can go politically. If this does not work, there may be no more; so this had better work. I do not believe the markets have priced this in yet.
While Europe waits, China continues to slow. “Beijing Plans Infrastructure Binge,” in the weekend WSJ (p. A10), outlines how China is planning another stimulus package focused on infrastructure to try to accelerate growth again and makes the point that this is not the kind of consumer-driven growth that China has said it wants. Monday saw even more coverage, with “Debate rages over China’s ‘new normal’” (FT, p. 6) discussing how China’s growth rates may be permanently lower going forward, followed by “Downturn in China spreads to key sectors” (FT, p. 15). The NYT had “Construction and Real Estate Hinder China’s Growth” (p. B1), and the WSJ had “China Economy Shows More Frailty” (p. A8) and “Loan Rollovers Mount in China, Spur Concern.” Don’t worry; we know that real estate can only go up—right?
Coverage of the U.S. was not any more cheerful. “Not so different this time,” in Monday’s FT (p. 7), talks about how central banks are losing faith in their ability to use traditional tools to pump up the economy, and “Corporate gloom over earnings” (FT, p. 15) is about how U.S. companies are more pessimistic than they’ve been at any time since the start of the financial crisis. “Housing on Mend, but Full Recovery Is Far Off” (WSJ, p. A2) makes a similar cautionary point about one of the bright spots in the U.S. recovery so far.
Given the continued weakness, the upcoming Federal Reserve (Fed) meeting this week has expectations high for an announcement of continued quantitative easing, spurred by Bernanke’s speech at Jackson Hole. “High Expectations for Fed” (WSJ, p. C1) and “Fed Meeting, ESF Vote Loom Large This Week” (WSJ, p. C2) outline the expectations and discuss some of the consequences—which could be ugly—if they are not met.
Quick hits: “Geography Strikes Back” (weekend WSJ, p. C1) is a great article. The death of distance and the triumph of the virtual have been vastly overstated, and this article is a good look at why the real is just as relevant as it ever was. “Romney makes health care U-turn” (FT, p. 4) and “Romney, Easing, Says Health Care Law Isn’t All Bad” (NYT, p. A12) suggest that Obamacare, in one form or another, will be with us no matter who wins the election. As I have pointed out several times in other posts, the politics of the health care law were never as clear-cut as people said, and they will also greatly complicate the already convoluted deficit problem. “Treasury to Reduce AIG Stake Below 50%” (NYT, p. B1) and “US Plans $18 Billion Offering of AIG Stock” (WSJ, p. A1) showcase one eventual success, or at least avoided failure, from the financial crisis. Finally, “Sun Peaks Through in Solar” (WSJ, p. B1) hits one of my favorite meta-narratives, the multiple ways the energy crisis is being solved. We will install more solar capacity this year than in the previous decade, and the price gap is shrinking. I keep telling you, we are getting there.
Have a great day!