Notes From Underground: WEN in Rome

Chinese Premier WEN Jiabao visited Italy after the EU/China summit that took place this week. Wen had been to Greece earlier as China is looking for assets in the battered peripheral economies of the EU. Are the Chinese sovereign wealth funds truly interested in European troubled assets or merely attempting to buy some good will so as to break up a possible unified action by the developed nations against the renminbi? The Chinese are in Italy and making some noise about buying Italian companies to ensure a place in the European economies.

This is interesting for there is no currency advantage to buy in Rome rather than Berlin or any major European center. Yes, some Italian assets may be cheaper due to stress, but why not try Spain and Ireland where many assets are severely distressed? It is interesting where the Chinese have shown up and again, we sense that at this point it is just a matter of discussions. Wen did come under a heavy verbal attack by the politicos in Brussels so we think that Wen is in Rome on a goodwill adventure. With all due  respect to the Chinese, they are probably tired of Schumer and being jerked around by CIFIUS when they try to acquire U.S. assets. As the Chinese Premier will remind the denizens of Washington,D.C., they are not the only game in the world.

Unemployment is Friday and this one sets up to be of huge importance. First, we get the Canadian number at 6 a.m. CST and it can portend the way the U.S. number will appear. The Canadians are looking for job growth of 11,000 and the rate to remain stable at 8.1 percent. We caution that recent data from Canada has been mixed as the PMI was robust, but recent housing data has been soft. BOC Governor Carney has warned that the consumer up north is getting a little over extended. A robust jobs number will rally the LOONIE and set up the U.S. for a better number.

In the U.S., the consensus is for a NEGATIVE 10,000 on Non-farm payroll but the important number will be private jobs creation. The census takers will take 70,000 off the payrolls, but the consensus for private sector jobs appears to be around 40,000. The unemployment rate is projected to climb to 9.7 percent as more workers start to search for work and, MOST IMPORTANTLY, AVERAGE HOURLY EARNINGS are expected to come in at a .2 percent increase. If wages rise more than that it will be deemed a positive as employees are having to pay more to keep workers and will soon have to start hiring.

Also of importance is the average work week, presently at 34.2 hours per week. If the hours number moves up that will also bode well for future hiring. If the number is stronger than expected look for the DOLLAR to rally and the precious metals to get hit, even after today’s selloff, as it will mean that the FED can hold off on QE. The equities will initially sell off also but should find a rally as the FED would still be on hold with some underlying better economic growth. The TREASURY market will be the main area though as the shorts are looking for a sea change to establish their view that U.S. long rates have been heavily distorted by the anticipation of a new round of QE.

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7 Responses to “Notes From Underground: WEN in Rome”

  1. Arthur Global Practice Says:

    From a Chinese´s view, probably is easiest to do business with Berlusconi than Sarkozy, Merkel or Zapatero.

    The Dollar? My biggest concern about the imminent QEII is it impact on the US dollar. I believe QEII will further erode the US dollar’s value. So, my view of a weaker secular US dollar is the reason that I believe most commodities, particularly precious metals, crude oil, other energy, foodstuffs and certain base metals will be a very good store of value once
    QEII is launched… and many EM currencies particularly those of
    resource‐exporting countries like Brazil, Indonesia and Chile, for example.

  2. yra Says:

    Nothing that we can’t agree there Arthur and the FED has done a 180 from March of 2008

  3. Michael Greenberg Says:

    “Wen” in Rome. Very good!

  4. Ron Theda Says:

    Yra,

    Well looks like Dudley had a reason to give that speech, he knew the numbers and the numbers aren’t very good (Im a little surprised they weren’t better, I will take another look to see if I missed something positive) so QE2 seems assured now.

    Arthur (& Yra), would collectibles and art go up in your dollar decline scenario. I’ve got a client who asked. I’m not sure if those are a real store of value, merely an inflation play or just a mania.

  5. yra Says:

    Ron –good question especially in a deleveraging environ—i think those do well when inflation is upon us —i know some would say that about gold but we at notes have argued for the last year that gold was rising on the fears of deflation and the fed response to that

  6. Arthur Global Practice Says:

    Ron, I agree with Yra… Investing in art? Is arguably more intellectually, aes- thetically, and socially rewarding than investing in other asset classes 🙂

    Yra, a friend from Istanbul, Generali investments European Institutional Conference. They manage 300bn euros.

    · On the Macro front: sluggish growth, low interest rates, low inflation but NO Japanese like scenario moving forward. Low risk of double dip

    · Positive view on Long term government bonds (until QE2 is implemented) and on the €. See value in credit and Equities.

    · Little value in the short term part of the curve. Bets: Brasil, Turkey (equity and lira) and AUD.

  7. Arthur Global Practice Says:

    By the way, Orsazg, Romer, Summers and now gen. James Jones… Next? Geithner, Bernanke?

    So, that means-what?

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