What We’re Reading

by CC May 27, 2011 8:54 am • Commentary

Friday’s Economic Calendar (Seeking Alpha)

  • Notable earnings before Friday’s open:MENT, SDRL

Earnings: Last Night

  • Marvell Technology Group (MRVL): Q1 EPS of $0.29 misses by $0.01. Revenue of $802M (-6% Y/Y) misses by $24M. Shares +8.9% AH. (PR, earnings call transcript)
  • OmniVision Technologies (OVTI): FQ4 EPS of $0.66 beats by $0.01. Revenue of $258M (+64% Y/Y) beats by $3M. Shares -5.9% AH. (PR)


Consumer spending rose less than expected in April as high gasoline prices continued to squeeze household budgets, according to government data on Friday which also showed annual inflation accelerating at its fastest pace in a year.

Economists polled by Reuters had expected spending, which accounts for about 70 percent of U.S. economic activity, to rise 0.5 percent last month after a previously reported 0.6 percent rise in March.

When adjusted for inflation, spending nudged up 0.1 percent last month after gaining 0.1 percent in March.

The report suggested consumer spending maintained its weaker tone into the second quarter as high gasoline and food prices continue to stretch household finances.

Consumer spending rose at a 2.2 percent rate in the first quarter, braking sharply from a 4 percent pace in the October-December period.

But a recent cooling in gasoline prices should ease some of the pressure on households and boost spending in the months ahead.

Business Insider

An interesting point from JPmorgan‘s Thomas Lee, who argues that the economic data has been so consistently disappointing, that a rebound in the Citi Economic Surprise Index (which measures the data against expectations) is practically guaranteed.

Again, it’s not that the economy will rebound, but the economy will rebound vs. expectations, which is actually what matters to markets.

We have found economic surprise indices (CESI, the Citi Economic Surprise Index in this case, CESIUSD index) to be a historically reliable signal for both Cyclical (vs. Defensive) relative performance as well as for S&P 500 absolute return. Economic momentum has been slowing for the past few months, reflecting the dual effects of both higher oil prices as well as disruptions stemming from Japan. Economic momentum, as defined by the Citigroup Economic Surprise Index , is at an extreme low level of –57.9. This index is mean reverting, however, suggesting we are likely to see a rebound in economic surprise soon.

Business Insider

China is about the export inflation to the rest of the world in a process that will resemble the fall of three dominos, one of which is already fallen, according to Societe Generale.

In a massive report titled “The China Domino has Fallen!” Soc Gen analysts outline the three dominos of the Chinese inflation export scheme, and their current progress.

  • Domestic inflation: China switch to a consumer driven economy means more domestic demand. Supply remains constant, so prices rise. This is already happening.
  • China exports inflation: “This dynamic seems as inevitable as gravity itself.” Chinese demand for oil and steel has pushed prices up in those markets. Now it is effecting commodities like cotton and food products. That’s being passed on to developed markets like the U.S., and it will really hit home in 2012. This is in the process of happening.
  • China demand shock: The country’s long-term economic rebalancing results in an permanent increase in global demand. Supply is sticky, and it will take time for it to catch up, thus limiting the world’s ability to cope with this rise in demand. This is starting to happen.

If this didn’t sound alarming, their conclusion on how this resembles the reverse of China’s entry into the WTO should.

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