What happened this past week?

Given this is something we do internally weekly I thought it would be good to share our basic thoughts on what were the key events happening within the past week. Its a simple point by point thought on the positive and negative events that we notice both locally and internationally.

Positives:

  • After falling every single day last week, the Spanish IBEX rallies every single day this week in anticipation of bank recap via EFSF.
  • The PBOC (China) and RBA (Australia) both cut interest rates.
  • Canada and Australia both report better than expected job gains in May.
  • Thai inflation still remains benign
  • UK PMI services index holds at 53.3 for 2nd month instead of falling to 52.4 as expected.
  • US ISM services index unexpectedly rises to 53.7 in May vs 53.5 in April, a phew moment in light of growing economic worries.

Negatives:

  • Euro zone retail sales, German factory orders, German exports and Italian IP all fall more than expected in April.
  • None of the central banks confirmed that they were going to print silly amounts of money
  • Thai Parliament begun to emulate Taiwan’s parliament with slapping and hair pulling.
  • Foreign fund flow continued to exit from Thailand until the past 2 trading days.
  • China’s state sector weighted PMI services index falls to 55.2 from 56.1, the lowest since at least Mar ’11.

Soros believes the Euro will stay intact for now…

Soros gave a speech at the Festival of Economics, Trento Italy, there he covered his thoughts on the Euro Crisis today, its a fascinating read enjoy!

But the likelihood is that the euro will survive because a breakup would be devastating not only for the periphery but also for Germany. It would leave Germany with large unenforceable claims against the periphery countries. The Bundesbank alone will have over a trillion euros of claims arising out of Target2 by the end of this year, in addition to all the intergovernmental obligations. And a return to the Deutschemark would likely price Germany out of its export markets – not to mention the political consequences. So Germany is likely to do what is necessary to preserve the euro – but nothing more. That would result in a eurozone dominated by Germany in which the divergence between the creditor and debtor countries would continue to widen and the periphery would turn into permanently depressed areas in need of constant transfer of payments. That would turn the European Union into something very different from what it was when it was a “fantastic object” that fired peoples imagination. It would be a German empire with the periphery as the hinterland.

 

Source: George Soros