This week’s release of continued negative growth in much of the Eurozone means further uncertainty for the economies there.  It also marked the latest release of data from the world’s developed economies that show little signs of increased growth on the horizon.

We spoke with former U.S. Secretary of State Condoleezza Rice recently about her view of what the U.S. economy and the global economy need to encourage stronger growth.  Among them is a revamped trade policy, according to Rice:

I tend to think that trade policy would help. That if you had a robust effort and free trade agreements for the United States, perhaps another try at a round for the World Trade Organization, that you might be able to stimulate some even export-led growth, which at this point would be welcome.

We also discussed with Rice what the developed economies must do to encourage global growth, and the role of the United States in setting the roadmap for fiscal certainty around the globe. Watch a portion of our interview above.

Though low moisture persists throughout most of the wheat growing areas in the Plains, some of the late winter snows came just in time.

Wheat crops in the U.S. are planted at two different times of the year, with winter wheat planted in the fall and spring wheat planted in the spring. Winter wheat germinates and sets down roots in the fall, then goes dormant until weather warms enough to allow it to resume growing.

Snow serves two purposes for winter wheat. First, it acts like insulation for the seedlings, protecting them from changes in temperature over the winter, and second when the snow melts, it recharges the top soil.

Drew Lerner, senior meteorologist at World Weather Inc., said the snow storms in February in the parts of the Texas/Oklahoma Panhandle and southwest Kansas melted quickly and may have warmed up the soils enough to break up any frost that might have been there.

A lack of snow leaves seedlings at risk of various in temperature. Freeze/thaw cycles can cause soil heaving, which damages the tiny roots and can hurt early crop development.

In areas where wheat is planted in the spring, snow cover again is needed to recharge top soil, but this time, it’s to help during seeding time, when moisture is needed to allow seeds to sprout. “If there’s a lack of snow cover like it was last year in the Northern Plains, that can be a problem,” says Dale Mohler, expert senior meteorologist at Accuweather.

Last year’s dry weather hampered germination of the spring wheat crop.

“This year things were a little more normal. They want the snow so they don’t have to depend on the spring rain,” Mohler says.

It takes about 12 inches of snow to equal an inch of rain. The moisture crops receive from snowfall is important, but to a plant, snowmelt and rainfall are the same, Mohler says. “Rain versus snow, it doesn’t make a difference, but you want snow in the winter.”

Jack Bouroudjian discusses portfolio protection, and he notes that using low volatility is an easy way to insure your portfolio or a long position.

After one of the worst droughts in the past 50 years hammered the U.S. Midwest crop regions last year, winter snow and April rain helped to alleviate the soil moisture issues in parts of the eastern Midwest, and many areas even saw flooding.

While soil moisture is being adequately recharged, several meteorologists say areas that are in the grips of longer-term droughts, like regions of Texas and Nebraska, need much more moisture in order to resupply subsoil areas and key aquifers. Still, the moist top soil will help with seed germination during spring planting, as long as soils aren’t too wet to allow field preparation.

In one of the more memorable Plains snows, Amarillo, Texas, which is in the Panhandle region, received 19 inches of snow in one storm on Feb. 25. Dale Mohler, expert senior meteorologist at Accuweather, said that storm translated into 1.48 inches of water when it melted.

“It was huge and it really made a difference,” Mohler said, adding that in February the region’s total precipitation was 2.5 inches, which is more than the 1.99 inches they normally receive for the whole winter.

That storm also brought snow to Oklahoma and parts of southwest Kansas, helping out the dormant winter wheat crops. Drew Lerner, senior meteorologist at World Weather Inc., said because those areas were generally frost-free, snow melt trickled down. In areas where the ground is frozen, some of the snowmelt runs off the top of the snowpack and into rivers and streams, so not all of it seeps into the adjacent ground.

In other parts of the Midwest, the series of late-winter snows and April rain helped to eliminate the drought conditions in parts of the eastern Corn Belt, from southern Illinois, through most of Indiana and into Michigan and Ohio.

The western Corn Belt is a different story. Despite heavy rain in some areas of the Upper Midwest like western Iowa and southern Minnesota, the U.S. Drought Monitor maintains that moderate drought levels persist in those areas.

The Drought Monitor release May 2 said rains and snow melt helped add moisture in the Northern Plains and the Upper Midwest. However, much of Nebraska, along with parts of northwest Kansas and eastern Colorado are still in “exceptional” drought, the most severe level of dryness listed by the Drought Monitor.

No El Nino or La Nina

Pinpointing spring weather has been difficult this year because there’s no La Nina or El Nino, two weather phenomenons that can influence weather patterns, said Thomas Downs, agricultural meteorologist at Weather2000. “Things are really 50-50,” he says.

The eastern Corn Belt has plenty of soil moisture, according to the Drought Monitor, though river flooding and heavy rainfall in some areas have delayed the start of planting. The key will be temperatures and whether or not soils will warm up and dry out just enough to allow field preparation.

The northwest part of the Corn Belt will need summer rains to help recharge soil moisture, Mohler says. Otherwise, the areas from northwest Iowa, southern Minnesota, Nebraska and into the Dakotas could see problems, especially if the summer is hot.

Lerner and Mohler said the winter wheat crops, particularly in the Panhandle of Texas/Oklahoma will be off to a good start because of the snowmelt. “Wheat doesn’t need a lot of subsoil moisture. They can respond well to top soil moisture,” Lerner says.

The recent wheat tour throughout Kansas might tell a different story. The annual event in which scouts monitor field conditions to determine a state-wide yield for winter wheat saw an eight bushels-per-acre drop from 2012.

Even though the southern Plains saw some sizable snows this winter, the meteorologists say it hasn’t made a dent in the long-term drought problems the region has seen. To do that, the area needs sustained snow and rain. “The subsoil there is still super dry,” Downs says.

Mohler again highlighted the concerns about Nebraska, where farmers rely heavily on irrigation from the Ogallala aquifer to raise corn. “Last year they had good yields because a lot of that is irrigated. But you can’t do that for too many times,” he says.

While there are concerns about drought, Downs said the situation can change fairly rapidly. “A few years ago the Mississippi River had record floods, now we’re at record low water levels.”

Recent action by central banks around the world has led to some increased volatility in major foreign exchange markets. This month has already seen rate cuts in Europe and Australia and the Yen sinking to a new multi-year low against the U.S. Dollar. While these central bank actions are meant to stimulate weakened global economies many are concerned that the increasingly easy monetary policies being adopted around the world may be setting the world’s largest economies on a path towards an environment of competitive devaluation.

The first to take action this month was the European Central Bank. After a May 2^nd meeting the ECB responded to persistently weak economic data and sluggish growth with a long anticipated cut to benchmark interest rates. ECB president Mario Draghi announced that the rate would be lowered by 25 basis points to a new record low of 0.50 percent. Draghi’s comments suggested that there were several members of the ECB that pushed for an even larger cut. Draghi also reiterated that the ECB would stand ready to act if economic conditions continue to deteriorate. Smaller members of the Eurozone have already criticized the ECB for doing too little too late, and there is a serious concern that the recent rate cut will not be effective.  Later this week the Eurozone will report their first quarter GDP numbers. Should this data look weak the ECB may feel pressure to purchase asset backed securities in a quantitative easing program, which would undoubtedly produce further downside for the Euro. Traders are already speculating on a lower Euro with June Euro FX Futures breaking the key 1.30 level last week.

The Reserve Bank of Australia also responded to sluggish growth in their economy last week by cutting their benchmark interest rates from 3 percent to a new record low of 2.75 percent. The rate cut follows recent months of soft economic data including extremely weak retail sales numbers released May 3^rd. The Australian economy is heavily tied to commodities, with the mining sector alone representing 10 percent of the county’s overall GDP. A strong Australian Dollar and falling commodity prices have done a lot to hinder growth. Chinese PMI has also fallen to the lowest levels since 2011. A slowdown in China would mean lower demand for oil and iron ore in Australia’s largest export market. The surprise rate cut is an attempt to bolster the country’s waning export market and increase credit demand.

While the aforementioned economies are hastily attempting to put out fires, the Bank of Japan has been content in allowing their own economy to heat up.  The Topix and Nikkei indices have been the top performers since the Japanese central bank began unprecedented levels of quantitative easing in mid-November.  Just today the G7 leaders issued confirmation that they would allow this easing to occur unmolested, and the Yen was driven to 102¥/USD for the first time in 7 years.  The advance of the Nikkei under devaluation duress could be a blessing or a curse, however, as foreign investment could partially offset the inflation that was the goal of the open-market operations by the BoJ.  If this was to occur, and Shinzo Abe and his compatriots desired the continuation of this bloody-minded pursuit of inflation, we may see further action from the central bank in the near future to correct any imbalance.

Today’s statement from the G7 is encouraging.  Unlike the early QE efforts from the world’s largest economies, which were met with nothing but vitriol and mistrust the localized devaluation of currencies has been performed in a much more open and cooperative manner in more recent times.  There are limits to tolerance, though, and many central banks are politely pushing their own programs to those limits.  There are not direct retaliatory ‘attacks’ occurring at this point, but it may be only a matter of time before one central bank truly draws the ire of another.

Jack Bouroudjian discusses the relationship between fixed income markets and equities markets.

This week, we are seeing signs of economic growth as U.S. retail sales grew 3.7 percent in the past 12 months, and consumers are taking advantage of lower gas prices.

See below for economic week ahead, as well as some stories and tweets you may have missed.

The Economic Week

Monday

US Crop Progress

3:00 PM CT

Tuesday

EMU Industrial Production

5:00 AM ET

Wednesday

US Housing Market Index

10:00 AM ET

Thursday

US Consumer Price Index

8:30 AM ET

Friday

US Consumer Sentiment

9:55 AM ET

Read the full economic calendar here.

Links

Here are 13 things you didn’t know about the Fortune 500. (Fortune)

‘Superwheat’ could boost yields by 30 percent. (Wired)

Business students ponder the economics of everyday life. (New York Times)

What Is the Fed Thinking? (Bloomberg Views)

Welcome to the post-BRIC world. (The Economist)

Economists’ advice on graduation day. (NPR Planet Money)

The Economist discuss the evolution of CME Group. (The Economist)

Tweets of the Week

Gas prices fall = more retail spending elsewhere. Core can be deceiving. Question is how much does the consumer have to spend. #RetailSales

— Dan Alpert (@DanielAlpert) May 13, 2013

After misreading 2012 presidential election, Gallup polling has undertaken an internal review: politi.co/12tMrZg

— POLITICO (@politico) May 13, 2013

Does Canada have a housing bubble & is it popping? bit.ly/17l3IJS by @carney

— Matt O’Brien (@ObsoleteDogma) May 13, 2013

Huge market move stories have half life of about 14 seconds on Twitter

— Chris Adams (@chrisadamsmkts) May 9, 2013

JP Morgan: Biggest factor in the declining labor force participation rate is aging of population, not tough economy aei-ideas.org/2013/05/jp-mor…

— Jerry Khachoyan(@TheArmoTrader) May 13, 2013

As we kick off the week, we want to share a story about “the biggest financial exchange you have never heard of”: us.

One of the most prestigious business publications in the world, The Economist, features CME Group this week, tracing our rich history to our growth in recent years which the writer calls “spectacular.”  The story concludes that “CME is evolving into an ever more sophisticated institution that plays a key role in many sorts of financing.”

For those familiar with CME Group, this is a great reminder of the global role of our markets in the broader economy.  For those not so familiar, it is a strong introduction to one of the most influential institutions - and brands – in global finance.

Read the article here.

• A 25 basis point rate cut on the repo rate to 0.5%, a new record low, bringing Europe’s policy rate in line with the Bank of England’s. Since we can understand from Mario Draghi’s press conference that a number of ECB members argued for a larger rate cut of 50bp, yesterday’s move might not be the last one. Mario Draghi has even hinted at the possibility of a negative deposit rate. (There was a dissent by a German member, which in a multi-national composition cannot be taken as lightly as a lone Fed dissent would be.)
• A 50bp cut in the Marginal Lending Rate (MLR), from 1.5% to 1%. This is more important than many people appreciate, since the MLR is used as a base rate for the most fragile banks financed by their national central bank though the Emergency Liquidity Assistance programs.
• A commitment to keep the full liquidity allotment on repo operations until at least July 2014. This move kills any liquidity stress that could have arisen from the large refinancing needs expected in the banking sector, as many bonds expire over the next 15 months.

Contrary to what the pessimists are saying, ECB policy has a clear impact on credit and funding markets. Bond yields on banks in Italy and Spain declined to new lows yesterday. And peripheral government bonds continued to rally, with even Greek yields now below 10%. Draghi’s stewardship continues to cheer European financial markets.

Still, Draghi failed to deliver on new unorthodox measures targeting credit channels more directly. The constraints upon the ECB are such that its ability to completely reassure investors is lower than that of global peers,
especially ahead of the German elections. And Europe’s broader policy challenges are unique. Europe is current trying to deliver:

• The minimal level of federalism and coordination necessary to allow the euro experiment to continue. The next crucial step here is to come as close as possible to a banking union.
• To boost “competitiveness” through pension and labor market reforms, lower or stabilized public spending and transfers, deregulation of protected sectors/professions, and more privatization.
• And finally, to walk a fine line between deleveraging and supporting growth in countries which, in some cases, are suffering mass unemployment. The ECB here plays a crucial role, but euroland also needs a fiscal policy that reduces BOTH spending AND taxes. Hopefully, more and more countries now plan to follow this path, including Italy, Portugal, and even Greece.

The risk for the euro area is that it loses the race with time, realizing too late that only shock-and-awe actions could have saved the day. Also, the European bet that growth will return gradually from the second half of the
year remains extremely reliant on a global recovery. Any disappointment on this front would thus raise the level of anxiety and doubt even further in Europe. These concerns will not go away tomorrow, and they justify the
high risk premium attached to European asset prices.

The EMU will thus remain a high beta market. But the value of the European beta has been sharply reduced over the last 12 months, as rigid austerity gives way to Thatcherite Keynesianism. I thus reiterated my call for moderately long exposure on European risk assets (equities and peripheral bonds), but with still sizeable long core EMU bond positions. This cautious strategy has for long been the safest and most rewarding bet.
Keep this until the global economy is able to re-accelerate more convincingly.

François-Xavier Chauchat is the European economist at Gavekal, one of the world’s leading independent providers of global investment research. Former Chief Economist of Crédit Agricole Cheuvreux, he began his career in 1989 at Banque Indosuez on the European bond and forex market desk, before joining BNP in 1994 as a US bond market analyst. 

U.S. farmers expect to plant the greatest corn acreage since the 1930s, but prices and weather can have just as big an influence on whether intended plantings turn into actual acreage.

On March 28, the U.S. Department of Agriculture said farmers intend to plant 97.3 million acres of corn and 77.1 million acres of soybeans in its Prospective Plantings report. The corn figure is up slightly from 2012 and 6 percent over 2011. USDA said “if realized, this will represent the highest planted acreage in the United States since 1936 when an estimated 102 million acres were planted.”

Soybean estimated planted area is down slightly from 2012, but would be the fourth-highest on record, if realized. USDA said all wheat planted area for 2013 is estimated at 56.4 million acres, up 1 percent from 2012.

Grain industry analysts said the prospective plantings figures are mostly just a guidepost at this time and that the actual spring acreage will change. USDA will release final acreage figures on June 28.

Sterling Smith, a futures specialist in commodity research at Citibank Institutional Client Group, says price and weather are two of the major variables that can change farmers’ plans.

For this year, he said the market was affected in early April by the surprisingly higher-than-expected corn grain stocks report.

Corn stocks for the second quarter were much higher than anticipated, at 5.4 billion bushels. Second-quarter soybean stocks were 999 million and third-quarter wheat stocks were 1.23 billion bushels.

“The stocks number really affected the price of corn which infected the other markets…. There was weaker demand (for corn) and there were imports,” Smith said.

While the grain stocks report showed higher-than-expected corn stocks, farmers who plant the golden grain are likely to ignore that, said John Kleist, senior analyst at EbotTrading.com. “All we’ve done is talk about tight old-crop supplies,” Kleist says. “Farmers are less concerned about demand. Those who plant corn think it’s underpriced,” he adds.

Because he feels farmers favor corn, Kleist said wouldn’t be surprised if final corn acres rise by 500,000. Soybean acres will likely hold around current levels, he says.

“I could see corn picking up acres in the South from rice and other parts of the Midwest,” Kleist says.

Both corn and soybean prices dropped after the report, which moves the advantage back to corn, Kleist says. There was a time where farmers might have wanted to plant more soybeans, but with a lack of growing problems in South America and expectations of a record crop there, there’s less incentive for U.S. farmers to plant beans, he says.

Traders can get a sense of where the acreage battle is heading by looking at prices. During planting season, the industry watches the corn/soybean ratio, with 2.5:1 usually considered balanced. Shifts in the ratio can signal a market is trying to “buy” acres.

Mother Nature Has a Say Too

The cold and wet spring throughout much of the United States delayed planting for corn and soybeans in much of the country.

Darrel Good, agricultural economist at the University of Illinois, said prevented plantings can have a big impact on actual acreage. In 2012, this was less of an issue because of a warm spring, with only 1.24 million acres unplanted because of weather. But in 2009, 2010 and 2011, prevented plantings were high, at 4.18 million, 6.89 million, and 9.62 million acres, respectively, Good said.

This might be an issue in the northern Plains states because “snow cover suggests the potential for spring flooding” and delayed planting, he said.

Delayed planting can sometimes affect corn yield, Good said, adding that agronomic research suggests that corn planted after mid-May can have a large yield penalty.

Jack Bouroudjian looks at the psychology behind a rallying market vs. a slumping market, and the trademarks of each. Find out why the actions of traders this week tell him it’s a sleeping market.

Read about Brazil’s economy today, and most coverage focuses on how things have slowed down from the highs of the last ten years.  GDP growth was 0.9 percent in 2012, after growing as much as  7.5 percent in 2010,  and the IMF recently reduced 2013 projections from 3.5 to 3 percent. Inflation hit levels in April above the government’s upper limit of its target.

But the country’s central bank president, Alexandre Tombini, sees reasons for optimism. As external factors like the European fiscal crisis continue to have an effect on Brazil’s economy, he has highlighted an effort to limit the impact of those factors and increase investment in the country. Tombini recently told us (in the above video):

As far as geographic diversification, Brazil is well placed, but the problem is that the whole global trade has been affected by the U.S. and then the European situation the last five years. We hope global trade resumes growth in the coming years, so this will benefit a country like Brazil.

He also told us how, despite some of the recent challenges, Brazil’s potential for growth is still strong. 40 million Brazilians have emerged to be part of a new middle class over the last ten years, providing a sizable expansion of the country’s domestic markets, he says.

In a report this week, The Economist highlighted a similar point about the prospects for Brazil’s economy, describing that despite the slowed growth overall, Brazilians are seeing a better situation for themselves:

Yet Brazilians seem blissfully unconcerned. IPEA, a Brazilian research institute, regularly finds that two-thirds to three-quarters of families say their financial situation improved during the past year, and that they expect it to get even better in the year ahead. In December Gallup, a global pollster, found that those optimistic about the economy outnumbered pessimists by a wider margin in Brazil than in any other large economy.

Tombini also told us about how Brazil has been in a better position to navigate global economic uncertainty because of the strength of the country’s commodities sector. Watch our edited conversation in the video above.

Read More:

Edemir Pinto on Brazil’s Financial Marketplace