Tuesday, October 26, 2010

International passenger traffic had a 10.5% year-on-year increase which is significantly stronger than the
6.5% rise recorded for August. International freight traffic recorded a 14.8% year-on-year increase, which
is significantly weaker than the 19.0% rise recorded in August. “The industry’s situation is volatile.
Passenger traffic represents about three quarters of the industry’s revenues. While September’s
passenger growth is reassuring, the accelerating decline of air freight, including in Asia, is an early
indicator of some turbulence ahead,” said Bisignani. “Government actions can impact the sustainability of
the recovery. Austerity measures will dampen demand. When combined with new or increased taxation,
as we have seen in Germany and the UK, the challenges are even greater,” – IATA
International Monetary Fund working paper titled "Deconstructing the International Business Cycle: Why
Does AU.S. Sneeze Give the Rest of the World a Cold?" As the charts here show, "Our results suggest that
the international business cycle is largely driven by U.S. financial shocks with a significant impact from
global shocks, mainly reflecting commodity prices," they write. – International Monetary Fund
From Tom Keene - Q: What do our listeners need to know about QE2 right now? A: First off, that it’s
completely priced in by the market. We did a survey and over 90 percent of the people in the market
expect it and they expect QE2 of somewhere between $500 billion and $1 trillion. The second thing to
note is that even if it’s fully priced in fixed income, in foreign exchange there can be sort of longer-term
impacts where even though everybody knows about it, QE2 leads to continued dollar depreciation for an
extended period of time. – Bloomberg
TIPS auction from Mon getting a lot of attention this morning; NYT, FT, and WSJ all note that the negative
yields at the 5yr auction are a “positive sign” as it signals the market is anticipating inflation down the
road; the fact the yields were negative signals that investors are giving the Fed the benefit of the doubt in
its ability to manufacture inflation; the NYT headline – “In Bond Frenzy, Investors Bet on Inflation”
US stock returns haven’t been so strong from the perspective of foreigners - international investors in US
equities are doing less well than the raw S&P rise suggests. Indeed, in euros the S&P is barely up at all. In
yen terms, the entire rally since Tokyo’s unsuccessful foreign exchange intervention on Tuesday, October
26, 2010