Wall Street & The White House Agenda

@ Wall Street

Both sides of the negotiations over Greece´s debt restructuring appeared to blink this week, though no agreement has been finalized as of publication of this document.  In return for a voluntary 50% haircut on outstanding debt, Greece?s private creditors had wanted 4% coupons on the reorganized issues.  Eurozone governments, who are going to foot the bill, wanted 3.5%. 

They split the difference and edged towards agreement on 3.75%.  An accord would come at a critical time as Eurozone data this week indicated a sharp decline in bank lending to households and businesses.  Europe is facing a substantial credit crunch. But the hope is that policymakers can still work to avoid a broader and deeper financial disaster that would spread to other troubled ? but bigger ? members like Italy and Spain. 

If so, the crisis could be contained to a modest and short-lived recession within the Eurozone, with only limited fallout for US trade.  Meanwhile on the home front, the Fed opted to keep the balance sheet at current levels but provided additional stimulus by extending the forward rate guidance through 2014.  The goal is to help the recovery by compressing expectations for future short-term rates.  This strategy has had only mild success in the past, but the Fed is going to do whatever it takes to keep the recovery going.  In that sense, QE III is still on the table for this year.

On the data front, an initial report on fourth quarter GDP was the highlight this past week (January 23-27).  Growth picked up to its quickest pace of 2011 but relied heavily on an inventory rebuild that won?t be repeated anytime soon.  Final sales growth was positive but weak.  So the outlook for growth this year remains positive but subdued.  Otherwise the economic data were mixed.  Orders for core durable capital goods picked up in December after two months of contraction, suggesting that businesses will likely get back to investing this quarter. 

Consumer sentiment posted additional gains in a late-January update.  Consumers are feeling better about the economy and their personal situations, but are not nearly as optimistic as one would expect this late into the business cycle.  Housing data were lousy.  Pending sales of existing homes unexpectedly dropped in December, pointing to a weak month for final sales in January.  Meanwhile, new home sales in December also declined, suggesting the housing market is still a long way off from a rebound.

The coming week (January 30 - February 3) culminates with the always critical Jobs Report for January.  Payroll growth was probably only half as strong as in December as some of last month?s strength was related to seasonal factors that were reversed this month.  This puts the two-month average at +150K, up a bit from late last year, but not enough to pull down the unemployment rate, which is expected to correct upwards to 8.6%. 

Otherwise, personal incomes likely grew in December thanks to an improved jobs market.  However, spending was probably flat.  In January, vehicle sales were probably down following strong year-end promotional activity. The ISM Manufacturing and Non-Manufacturing indices are expected to have pushed further into expansion territory in January, signaling ongoing growth across major sectors of the economy. The Case-Shiller Home Price Index likely declined again in November as the housing market stagnated.  Labor productivity growth is expected to have slowed sharply in the fourth quarter as businesses stepped up hiring to help rebuild inventories.   

Personal Income:

There was likely no progress on consumer spending in December. Light vehicle sales were weaker than the previous month, utility bills were lower due to unseasonably warmer weather, and retail sales used to estimate personal spending fell into negative territory for the first time since July 2010.  But December's improved labor marke

@ The White House

In the morning, the President will receive the Presidential Daily Briefing and meet with senior advisors in the Oval Office.

In the afternoon, the President will welcome President Mikheil Saakashvili of Georgia to the White House.  This year marks the 20th anniversary of diplomatic relations between the United States and the Republic of Georgia and the two Presidents will discuss further strengthening the U.S. ? Georgia Charter on Strategic Partnership by enhancing cooperation in the fields of trade, tourism, energy, science, education, culture, and security.  President Obama will underscore the importance of our defense cooperation with Georgia, including Georgia?s substantial contributions to international security operations in Afghanistan. 

The President will reconfirm U.S. support for the integrity of Georgia?s territory within its internationally recognized borders.  The President also looks forward to discussing upcoming elections in Georgia and the reforms that will ensure Georgia?s continuing transformation into a vibrant and stable democratic state.

Later, the President and the First Lady will host the Diplomatic Corps Reception for the foreign diplomatic corps in the East Room.

In the evening, the President will participate in an interview with YouTube and Google+ to discuss his State of the Union Address. The interview will be held through a Google+ Hangout, making it the first completely virtual interview from the White House. The President will answer questions submitted by and voted on by over 225,000 people via YouTube.  This interview will be streamed live on WhiteHouse.gov, YouTube.com/whitehouse and the White House Google+ page.