Monday, October 24, 2011


Will a 60% haircut on Greek debt trigger credit default swap events?

While the market momentum is impressive, the economic backdrop both here and over there is less than impressive and the marginal impact of more quantitative wheezing seems questionable.

Consider that the U.S. economy, under a zero-interest-rate policy, has been able to muster less than 2% real growth through the first three quarters of the year.

China manufacturing data came in better than expected, while Europe fell short.

China's October flash manufacturing index came in at 51.1 as compared to expectations of 50.0 and 49.4 recorded in the prior month. This is a temporary blow to the hard-landing thesis in China, and it probably helps to explain the outsized move of $0.15 in copper today. (The rally since Friday in copper is the largest since March 2009).

By contrast, the October eurozone flash composite PMI fell to 47.2, well below September's 49.1 and consensus of 48.9. Both manufacturing and services declined. This is the sixth consecutive monthly drop and is now at the lowest reading in 2.25 years. The weakest component was new orders at 45.4.