***The Canadian situation became more muddled today with the release of its GDP. BOC Governor Mark Carney and FM Flaherty would love to raise rates in an effort to halt the rise of private debt, but today’s GDP showed a 0.1% decline in growth for the month. It is a real dilemma as the strong Canadian dollar is impacting some sectors of the economy and thus a rate increase to stem credit growth will have a strengthening impact. The GDP release blamed the slowing global economy for the downturn but it has not impacted domestic credit growth because of ultra-low rates. How will the Canadians solve this dilemma as it wants to slow the housing sector to help forestall private loans? This conundrum will test Carney’s position as a leading central banker. Let’s watch to see if it is possible to head off asset appreciation without causing system wide economic pain. Greenspan and Bernanke claim it is not possible. Governor Carney, here’s your chance to help set central banking on a better course.
***A heads up on the announced change in the ADP analytics. It seems that ADP is willing to learn after it has so badly missed on a month to month basis on its own private unemployment data release. Whatever metrics they were using were called into question with guesstimates wide of the mark that resulted in senseless volatility. I give the ADP group credit for having the strength to admit that change was needed. Using the new analytics would have resulted in last months being almost 50% less than the 166,000 recorded result. Under the new measures, the projected number for tomorrow’s report is 138,000, very much in line with the BLS NFP of 123,000 due out on Friday.
***The release of unemployment data for Europe today was disappointing. Italian unemployment rose to 10.8% from 10.6% reflecting increased weakness in economic strength. The overall jobs data for the 17 euro zone nations reached a record high of 11.6%. The adverse feedback loops that are plaguing the peripherals are causing the slowdown to take a bigger toll across the entire system. France is troubled by increasing joblessness and French unions are calling nationwide strikes for mid-November. President Hollande, a socialist , is going to have a difficult time imposing German demanded austerity on an economy on the throes of a recession. Trouble ahead, trouble behind–who is driving the European economic train?
Again, watch the German/French spreads for indication of the beginning of a new source of stress. Further, today it was revealed (stop laughing) that the Greeks would not meet their deficit targets and in fact the actual numbers will far exceed the agreed upon levels with the IMF. Instead of a GDP/Debt level of 167%, it is projected to grow to 192%. The result will prevent the IMF from coming forth previously agreed to funds, thus the plan I put forth yesterday makes more sense. Send German money to Greece and let the IMF increase its commitment to Spain … ah, fungibility.
*** The Swiss National Bank released its foreign exchange reserves for the third quarter and it is interesting. The holding of U.S. dollars increased to 28% from 22%; British pounds increased to 7% from 3%; yen rose to 9% from 8%; CAD rose to 4% from 3% and the EURO DROPPED to 48% FROM 66% of total reserves. It seems that the SNB was busy doing some portfolio balancing of its own. This will need further study to understand what the Swiss are trying to accomplish but interesting enough the EURO still gained on the quarter against the DOLLAR and the SWISS. As I always discuss, the currency crosses are an important variable to watch and with a major central bank moving all sorts of cash around the globe, it has attained an even heightened role. It is apparent that the SNB stays invested in the most liquid currencies and seems to want to avoid emerging market money.