Flowers Test Post

This is just a test.

I am playing around with posting to blogger using the 'Hello' messenger system.

Incidentally, these are not just *any* old flowers, they are roses for Sant Jordi (April 23) the day of the 'book and the
rose' here in Barcelona.

Trying to see what is the effect of adding text, and playing with the picture size.

Lets see if that does it.

US Job Growth Robust

Well, some better news to add to the rather mixed and even gloomy recent US data:

U.S. employers created a surprisingly large 274,000 new jobs in April and added more workers in each of the two preceding months than first thought, the Labor Department said on Friday in a report that may ease fears about economic growth.

The April jobs total far outstripped Wall Street economists' expectations for 170,000 new jobs. Further underlining the surge, the government said 93,000 more jobs were created in February and March than it previously reported -- 146,000 in March instead of 110,000 and a whopping 300,000 in February instead of 243,000.

The unemployment rate, however, which is calculated from a separate survey, was unchanged at 5.2 percent in April.

Global: Storm Clouds Gathering?

A number of 'gloomy' articles around in the press at the moment, first the US:

"Data released on Monday showed that manufacturing activity slowed further in April, with the Institute for Supply Management index sliding more steeply than expected from 55.2 to 53.3.
The index has fallen in eight of the nine previous releases and is creeping perilously close to the 50 mark that separates expansion from contraction. Particularly worrying was a sharp fall in the new orders component of the index to 53.7 from 57.1, which may point to weaker production in coming months.

Both the Federal Reserve and private sector economists have long been braced for a slowdown in consumer spending. Even so, evidence of an almost complete stagnation of retail sales in March which rose by just 0.1 per cent, excluding the volatile auto sector came as an unwelcome surprise.

The main concern, however, has been evidence of a slowdown in business investment. This grew by 10.6 per cent last year and was expected to continue to push the economy forward as consumers reined back their spending.

Last week's gross domestic product figures showed the growth in overall business investment slowing to 4.7 per cent in the first quarter, from 14.5 per cent in the previous three months.
Perhaps more worrying, there was evidence in the durable goods orders figures that this weakness is spilling over into the second quarter. Orders for non-defence capital goods components, excluding aircraft a proxy for business investment fell 4.7 per cent in March following a 2.5 per cent decline a month earlier."

Then there is the Eurozone:

"Manufacturing in the eurozone contracted in April for the first time in 20 months, highlighting the scale of the economic slowdown across the region and adding to fears that some member states might even be facing recession, according to a survey on Monday. The fall in the eurozone purchasing managers' index for the second month running, from 50.4 in March to 49.2, is the latest evidence of a significant slowdown in growth in the second quarter of this year, largely as a result of the energy-price shock.

France and Italy experienced a particularly sharp deterioration. Germany had a further weakening in business conditions."

Conditions in Japan are no better, so that leaves us with China propping the whole thing up! (All quotes are from the Financial Times as linked).

UK Housing Jitters

Staying with the UK for a moment, three recent articles in the press have drawn attention to the current delicate state of consumer spending and the housing market in the UK.

The first of these in Bloomberg on Tuesday suggests that retail sales are weakening considerably:

"The Confederation of British Industry said today its gauge of retail sales recorded the steepest drop since July 1992, when Britain emerged from its last recession. A separate index of purchasing managers conducted by NTC Research Ltd for the Chartered Institute of Purchasing and Supply fell to 49.5 from 51.6 in March, the first reading below 50 since June 2003.....

'The slowdown in consumer spending, which commenced in mid- 2004, seems to be getting more pronounced,' said Holger Schmieding, co-head of European economics at Bank of America in London."

Then the Economist started to worry about house prices:

"House prices are cooling in response to a steep decline in activity in the housing market. In March, 91,000 mortgages were approved for house purchases, somewhat more than in February but a quarter fewer than a year before. Turnover is likely to stay sluggish as potential sellers who are unwilling to accept lower prices respond by taking their houses off the market.

Last year, the Bank of England suggested that the usual link between house prices and consumer spending had weakened in recent years. Household consumption had grown respectably but not spectacularly at a time when house prices had been soaring. However, the link with retail sales seems to be re-asserting itself as the housing market turns sour".

Today investment bank AMB Amro publish a forecast which suggests that house prices may fall by 10 per cent by the end of the year, citing the fact that mortgage approvals are down 35 per cent year-on-year as evidence of a serious 'cooling off'. The bank argues that the consumer slowdown is set to accelerate, leading to a vicious cycle of lower spending, which in turn leads to job losses and fresh spending cuts.

" Half a million British jobs will be lost over the next three years because of a 'dramatic decline' in consumer spending, a leading investment bank warned yesterday.

A major slowdown would be triggered by falling house prices, higher interest rates, rising unemployment and excessive debt levels, ABN Amro said."

Blair Back For A Third Term

So it seems Tony will be back, albeit with a reduced majority. At the time of writing vote shares show around 36% for Labour, 33% for the Conservatives, and 22% for the Lib Dems.

That this should give 350 odd seats to Labour and 59 to the Lib Dems is one of the vagiaries (and of course injustices) of the British electoral system.

At school in the sixties we were told that the two party system was one of the strong-points of British democracy, since it guaranteed stable government when compared with the 'instability' to be found in countries like France and Italy.

Of course thinking on this has changed substantially. The UK has effectively a version of 'lock-in'.

Since I came to live in Spain my opinion on this has changed accordingly: governments with large absolute majorities may not be particularly desireable. There is much more chance of public opinion getting its voice heard when the government is dependent on a 'third party'.

Also, despite all the back slapping congratulations, I'm not sure 'third terms' are especially desireable. A well-functioning democratic system should be tuned to produce a change after two. The problem in the UK seems not to be the unchallengeable 'merits' of the incumbents, but rather the lamentable state of the 'official' opposition.

Which brings us back to an interesting point: what Europe reading can one put on all this? Now Europe seems not to have been an explicit issue in the election. But the vote must offer some guage of 'anti-EU' sentiment. Labour these days is hardly an anti-EU party, and the poor Conservative showing must tell us something.

Here I think it is absolutely essential to distinguish between the EU and the euro. The euro is undoubtedly completely off the UK agenda: and with good reason. But this is *not* the same as being pro- or anti- European.

Now the fact that there has been so much heart-searching about Iraq seems to me, in foreign policy terms, to lead in one direction, and one direction only: towards a greater reconciliation with Europe. This would seem to me to one of the the principal reasons the Conservatives were unable to avail themselves of this sentiment.

I may end up with egg on my face, but I'm getting to be rather more confident that the French will vote 'yes'in the constitution referendum, if they do it wouldn't surprise me to see the Dutch follow suit, in which case I wouldn't be totally pessimistic about a UK 'yes' vote next year, whatever the polls now show.

Of course as Harold Wilson said 'a week in politics is a long time', and I could be well wide of the mark.

Gambling On China's Currency

The FT are reporting that feelings that China may be about to have a controlled float on the are still running high. Indeed in recent days "Speculators have been active buyers of non-deliverable forward (NDF) contracts in the renminbi in recent weeks as speculation of a widening of the currency’s trading band has mounted."

The interesting thing is that the discount on one-year NDFs has been steady at 4,750 points, which suggests a coming revaluation of 5.7 per cent. All of which makes my best guess of 5% (made in a post on Afoe earlier in the week) look not bad at all.

Earlier in the week Andy Xie had a piece at the Morgan Stanley GEF which was pretty much to the point, and additionally I reproduce below a part of my own Afoe post:

Currency traders around the globe lazily staring into their screens must have found themselves transfixed last Friday when the flatline indicating the value of the Chinese yuan (or renminbi if you prefer) suddenly jumped to life. And so it was that during a brief 20 minute interval the yuan surged to a level of 8.270 to the dollar from the hypnotic and seemingly eternal value of 8.276. Now 6 thousandths of a dollar isn’t really a very big deal, but it is the sheer fact that it happened that is causing all the fuss.

Continue Reading

Interest Rates: The Long and the Short of It.

This little article is of interest as it draws attention to one issue which is often underplayed: the Federal Reserve (or the ECB for that matter) only controls short-term rates. Longer term rates, which are also pretty important for the economy, are not so easy to influence (although of course, as Bernanke has often indicated, the Fed has the authority to intervene all along the yield curve).

Rates on 30-year mortgages fell for a fifth consecutive week even as the Federal Reserve was boosting short-term rates. Mortgage giant Freddie Mac reported Thursday in its weekly survey that rates on 30-year, fixed-rate mortgages averaged 5.75 percent this week, down from 5.78 percent last week.

The decline pushed the 30-year rate down by more than a quarter-point from the 6.04 percent high for this year reached at the end of March.

Analysts attributed this week's drop to further evidence that the economy slowed significantly in March, a slowdown that is expected to keep the Federal Reserve from abandoning its gradual approach to raising interest rates. The Fed on Tuesday boosted a key short-term rate for the eighth time since last June, raising its target for the federal funds rate by a quarter-point to 3 percent.
Source: Associated Press

US Productivity Holds Its End Up

US productivity rose at an annual rate of 2.6 percent in the first three months of the year. This was the best showing in nine months but still way below the rapid clip so typical of recent years. This slowdown has long been expected by many economists as the US economy moved up to full capacity. The big question is how much productivity enhancing technological change is there in the pipeline. Knowing this would enable us to determine the 'cruising speed' for the US economy.

Federal Reserve Chairman Alan Greenspan, speaking by satellite to a conference in Chicago, said he believed there was still a "significant amount" of technological innovation that can be tapped to yield productivity gains.

"We know there is going to be increased innovation and increased productivity," he said, but the Fed chairman also said that forecasting exactly when it will occur is difficult.

With the solid increase in productivity — the amount of output per hour of work — unit labor costs rose by a moderate 2.2 percent in the first three months of the year. That was up slightly from a 1.7 percent rise in unit labor costs in the fourth quarter but far below the 4 percent surge in the third quarter of 2004.

But Steve Stanley, chief economist at RBS Greenwich Capital, said that over the past year, unit labor costs have stopped declining as they did in 2002 and 2003, and are now edging higher. He called this "another reason for the building concern among central bankers about inflation risks."
Source: Associated Press

Children in Japan at Historic Low

OK, I'm starting back slowly. Various news sources today pick up on info (which I can't find original source back-up for) about Japan's diminishing child population:

More proof that the birthrate is dropping steadily: There were 150,000 fewer children under 15 on April 1 in Japan than there were last April 1, marking the 24th consecutive annual drop in the figure, according to the internal affairs ministry.

The statistics, announced just before today-Children's Day-show there were 17.65 million children under age 15 on April 1. Of them, 9.04 million were boys and 8.6 million were girls.

As a segment of the total population, Japan's 13.8 percent for the 0-14 age bracket is among the lowest in the world.

That figure, on the decline now for 31 consecutive years, is 0.1 percentage point lower than last year in Japan. By prefecture, Tokyo had the smallest population ratio in the 0-14 age bracket, at 12 percent; Okinawa had the highest, at 18.6 percent. (Those figures were as of Oct. 1, 2004.)

Among other countries, the percentage for the 0-14 age bracket was: 21.5 percent in China; 20.7 percent in the United States; 20.3 percent in South Korea; 16.4 percent in Russia; and 14.7 percent in Germany.
Source:Asahi.com

OK I'm Back

This site has moved back!!!!

After a leave of absence and period of wandering around various potential formats, I'm please to announce that Bonobo is back.

Some of the remnants of what I have been up to in my absence can still be found over here

Also some recent posts of mine can be found over at A Fistful of Euros (Afoe), where I started blogging again at the end of last week.