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27 April 2009

Weekly Macro Comment

Han de Jong, Chief Economist

Uproar about Sesame Street

• Business sentiment in Europe improves

• Harder data continues to be more negative
• Fed continues its quant easing

How deep the crisis is in any country can perhaps be were down 5.7% yoy in March and retail sales were down
concluded from what dominates the local news. My verdict is 4.0% in real terms.
that the situation in the Netherlands is not that bad, relatively
speaking. One of the main news items here recently has been Harder economic data continued to be more negative than the
Sesame Street. The Dutch version of this children’s TV business surveys. New industrial orders in the eurozone were
programme has been running for decades. It used to be down 34.5% yoy in February, slightly worse than 34.3% in
broadcast at 6.30 pm, but now television bosses have decided January. We knew this already, of course, from individual
that it should move to another slot. According to many, this is countries.
wrong. Allegedly, 6.30 is the only right time for this show. Its
target audience will have their dinners eaten by then and not In Japan, the all-industry activity index fell 2.0% mom in
be in bed yet. The leading actor is Aart Staartjes, or ‘Meneer February, after -1.7% in January. GDP in the UK fell 1.9% qoq
Aart’ as he is called. After doing the show for decades, in Q1 on a preliminary basis. This was the third consecutive
‘Meneer Aart’ is threatening to quit if it is not put back to 6.30 quarterly decline, following -1.6% in Q4 and -0.7% in Q3. The
pm. While this is, indeed, a big thing - when Sesame Street quarterly decline was the most severe since a contraction of
dominates the news, how bad can the economic crisis be, 2.4% in 1979. The yoy rate has now fallen to -4.1%.
Durable goods orders in the US fell 0.8% mom in March. This
Business confidence across the eurozone is showing signs of was greeted as being not too bad. However, February was
recovery. The preliminary April PMIs all improved. The revised down from +3.4% to +2.1% and on a quarterly basis,
manufacturing PMI showed a clear improvement, the first one the key elements were all weaker in Q1 than in Q4. This
this cycle, while the services PMI showed a second clear suggests that business investment will have made a more
monthly rise. The authoritative German Ifo index also improved negative contribution to overall GDP growth than in Q4. US
in April: 83.7, versus 81.1 in March and is showing a similar home sales, both existing and new homes, eased a little in
pattern to the eurozone’s PMIs. The expectations component March, but February’s rise was not fully undone. Home sales
of the Ifo-index continued its climb, its fourth consecutive now appear to be bottoming out. Well, at a very low level, that
monthly rise. This component reached a level of 83.9 after a is. But any improvement is welcome and it suggests that the
low of 76.9 in December. The April reading exactly matches measures taken to support the housing market are at least
the low of the 1992/1993 recession. Perhaps more importantly, finally having some impact .
the current-conditions component rose in April, its first monthly
increase in many months. Business surveys in France showed Overall, our longstanding view that although this is a bad
the same trend. In line with this, consumer and business recession, actions taken by policymakers should start to have
confidence has improved in Holland and Belgium. All this a positive impact in the course of this year, appears to be
matches similar patters in Asia and the US with a slight delay. borne out by recent data. It remains to be seen how
sustainable any improvement is. In my opinion, three things
Another modest positive was reported in Japanese trade data. must happen simultaneously for a sustainable recovery to
Exports were down 45.6% yoy in March, a little better than the start. First, activity levels must be raised, in other words, the
-49.4% in February. Imports also strengthened: -36.7% against recession must stop. Second, the destruction of wealth must
-43.0%. South Korea’s Q1 GDP was, surprisingly, up 0.1%, cease. That means that house prices must stop declining,
thanks to the government’s stimulus. On a yoy basis, GDP was particularly in the US, but elsewhere too. And third, the banking
down 4.3% lower. On the negative side, Russian real wages system must function normally, whatever that is exactly. So far,


27 April 2009

it looks like policymakers are achieving some success in all

areas. On 4 May, the US Treasury will announce the results of
the stress tests for the country’s 19 largest banks. There was a
rumour last week that 16 of them emerged as technically
insolvent. This rumour spooked the markets. Even if this is
actually the result, I cannot imagine that the authorities would
present it as bluntly as that. They will obviously try to use 4
May as a confidence boosting exercise.

The Fed last week continued its policy of quant easing. It

bought just over USD 12 bn of Treasuries and USD 80 bn of
mortgage-related securities (Agency debt and actual MBS).
The Fed’s balance sheet increased by some USD 70 bn on the
week. It has now bought USD 60bn of Treasuries since this
policy started just over a month ago. The Fed is thus ‘on
schedule’ as it announced it would buy some USD 300 bn over
a six-month period. The activities in the area of MBS are
actually much more sizeable. The Fed started buying MBS in
January and has since bought USD 367 bn.

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