Notes on the News

  • Romney won in Florida by 14 points. Good.
  • Fred Goodwin has been stripped of his knighthood. Pure vindictiveness.
  • Greek talks seem to be converging on a coupon of 3.6%. GDP warrants are being talked about as a sweetener and may provide an opportunity.
  • Indicators of risk in Europe continue to moderate. The Euribor-Eonia spread has fallen through January, indicating improving confidence in the health of the banks; and the German repo-Eonia spread has come in, although it remains wide, indicating that that collateral crunch remains with us but has become less severe.

UK Government Spending

I read a piece this morning that argued that the weakness of the UK economy could not be due to austerity, because the government deficit remained high as a proportion of GDP. This does not seem to me to be a very good argument. First, the existence of a deficit does not tell us whether government spending is falling or rising, and thus whether government is a boosting or dragging on GDP. Second, nominal government spending net of interest payments and benefits has started to fall on a 12-month basis, which means that real spending is falling faster. That is what makes a difference to the economy.


  • Case-Shiller -3.7% d.e.
  • Chicago PMI 60.2 d.e.
  • CB consumer confidence fell a little but remains near post-crisis highs.
  • China PMI 50.5 b.e. and rose. HSBC China PMI, which may be a better indicator, rose a little to 48.8.
  • UK Nationwide house price index -0.2% a.e. Jan.
  • Eurozone PMI 48.8 vs. flash estimate of 48.7.
  • UK PMI 52.1, b.e. and rose.
  • Eurozone CPI flash 2.7% a.e. Jan.