Thursday, March 31, 2011 – my comments are in italics

Initial Jobless Claims: Survey 380 Actual 388 Prior 382 Revised 394

Treasury now foresees profit from bailouts of ~$24B. – Department of Treasury

Fed debate on exit policy appears to be heating up – Hoenig and Bullard both made hawkish
remarks late in trading on Wed. Reuters says the hawkish comments from a bunch of Fed officials lately
signal that debate within the FOMC is heating up as to how quickly the bank should proceed w/its exit
policies. – CNBC – the hawkish rhetoric lately from Plosser, Lacker, Hoenig, Bullard (et al) is a sideshow to
the stoic main actors, Bernanke, Dudley & Yellen. The baseline scenario is still for the Fed to finish the
$600bn asset purchases through June 2011 and to not hike rates until 2012.
Spending deal close that would avoid government shutdown according to the WSJ –
Congressional leaders and the White House are close to a compromise deal on the budget that would
avoid a shutdown (recall the current temporary spending resolution expires Apr 8). The current deal
would cut ~$33B from the present budget (Republicans had been pushing for $60B). The WSJ says the
talks represent a “breakthrough.” – WSJ
NY Fed says it has rejected the AIG offer to buy the assets from Maiden Lane II; the NY Fed said
it will conduct a competitive auction of the assets. “In light of improved conditions in the secondary
market for non-agency residential mortgage backed securities (RMBS), and a high level of interest by
investors, the Federal Reserve believes that conditions are right for ML II to begin more extensive asset
sales”. NY Fed – If there is strong demand for these securities that could augur well for interest rates in a
post-GSE world.
ECB – hotter Eurozone inflation CPI cements expectations for rate move on Apr 7 - all eyes
increasingly are turning to the ECB meeting on Thurs Apr 7. The consensus thinking is calling for a 25bp
w/o too many outlier estimates (comments from a bunch of ECB officials over the last several days have
indicated that a hike remains the game plan despite the events in Japan and the Middle East). The big
question is what type of language Trichet uses to discuss policy for the rest of ’11 (i.e. is this the start of
a broader tightening campaign or just the first of ~3-4 increases). A PIMCO report Wed predicted that
the ECB would hike 100bp over the next year to get its target to 2% over the next year. The Eurozone
CPI Thurs morning printed higher than expected at +2.6% (vs. the ST forecast looking for +2.3%). – JPM –
more euro strength (and dollar weakness) ahead? The Euro has appreciated nearly 20% from the lows
last summer.

Japan PMI: the 3.11 earthquake shock plunged March PMI mfg to 46.4 from 52.9 in February –
Bloomberg – PMI = Purchasing Manger’s Index, which provides an overall view of manufacturing activity.

Schwarzenegger to unveil new comic book series dubbed “The Governator”; the character was
developed w/Spider-Man creator Stan Lee. – FT