Sometime between a minute and a month after Friday's unemployment report, capital markets will need to adjust to the macro landscape. Margins remain robust despite input increases hoped to be temporary. Profits generated from the rest of the world and a high weighting for financials won't pull the load for the rest of 2011. Structural global re-balancing has moved DM and EM economies farther apart in Q1. A stark example is the futures curve term structure into 2012 between the US and the EU. Into March, Euribor is 97.68 (2.32) vs 99.15 (85).
The silent "default" that US policy has engineered through growth, inflation and issuance has received incredible criticism culminating with PIMCOs vocal buyer's strike. In fact, it is the process that has kept us from the ash heap of history, so far. The European experience is a text book case of not being afforded this luxurious deceit by the capital markets. We are of the opinion that a messy budget process has heightened the Fed's desire to get out of the Treasury's business with commodity prices flying.
One thing we are confident about: The post 4-1 8:30 world is not the world most have become comfortable with.