Overview
Another nervous, thin, nasty week as investors kept hoping for good news on the Eurozone – and anything financial for that matter. Bid-offer spreads have widened, some things just cannot be traded or are offered way above their real worth because the banks cannot afford the write-downs. Estimates put Eurozone bank debt due in the fist quarter of 2012 at €230 Billion. By June next year the European Banking Authority insists they will have to raise another €114.7B in new capital to get core tier 1 to 9.0%, the bulk of the latest increase due to another €11B needed to shore up German banks. Lenders would not be allowed to do this by deleveraging but would have to raise fresh private finance. From who, exactly? Equity indices are roughly at last week’s closing levels, some mainly in Asia a little lower. Eurozone sovereign ten-year bond yield spreads have started widening out again, Switzerland’s Conf is at a new record low yield of 0.738% as are ten-year Australian and Canadian Treasuries at 3.795% and 1.978% respectively. Currencies at the middle of last week’s ranges and commodities sidelined.
Political and Economic Developments
New head at the ECB, Mario Draghi, in a straight-talking news conference after cutting the target rate by another 25 basis points to 1.00%, warned that his institution would be guided by the spirit of the EU treaty and that fudges like lending the IMF money to pass onto Eurozone countries in need was legally problematic. Admitting the decision was not unanimous and discussions had been ‘lively’, he also announced that new three-year unlimited liquidity would be available from the 21st December, that a greater choice of collateral could be used to secure this, and that it will act as agent for EFSF bond buying programmes. The Danish Central Bank followed suit cutting its target rate by 40 basis points to 0.80%. The Reserve Bank of Australia trimmed its Cash Rate by 25 basis points to 4.25% citing a weak housing market and a potential global slowdown, possibly something of a precautionary measure as they don’t meet again until February 7th. Canada, New Zealand and the UK kept theirs unchanged at 1.00%, 2.50% and 0.50% respectively. Also in the lead-up to today’s EU27 leaders’ summit in Brussels credit-rating agency Standard & Poors put 15 of the EZ17’s sovereign debt on watch negative (Cyprus already is and Greece is junk), likewise the European Union’s rating, citing ‘systemic stress...approaching recession’ and the ‘defensive, piecemeal’ management of the situation. They expect to conclude their review soon after today’s summit outcome.
The UK’s Visible Trade gap shrank suddenly from a record £10,175B to £7,557B in October taking the total gap to just £1,552B, among some of the narrowest figures of the last fifteen years.
Underlying Themes
Demonstrations and riot police in Moscow and St Petersburg and state television shows programmes of reindeer-tagging in the Arctic. Though 59-year old PM Putin’s United Russia Party’s majority dropped to 50% the middle classes were incensed that they might face this leader’s continuing grip on power until maybe 2024. Accusations of vote-rigging countered by suggestions of US interference, he said a cabinet re-shuffle would wait until the outcome of March’s presidential election in which he will stand. Another angry nation fights back. A note included in a letter-bomb addressed to Deutschebank’s CEO Ackermann from the Federazione Anarchica warned of explosions against ‘bankers, banks, fleas and bloodsuckers’. Graffiti in Paris up 25% this year mainly about economic malaise and including ‘did you elect your banker?’ and ‘full employment dies of a work stoppage’.
What to watch for next week
Monday early Japan November Domestic CGPI, Consumer Confidence, Machine Tool Orders and US Monthly Budget Statement. Tuesday Japan October Tertiary Industry Index, UK DCLG House Prices, US Business Inventories, November UK RICS House Price Balance, CPI, US Retail Sales, NFIB Small Business Optimism, December IBD/TIPP Economic Optimism, German and Eurozone ZEW Surveys and the Norges Bank and Fed’s FOMC meetings (expected unchanged at 2.25% and 0.25% respectively). Wednesday UK October Average Earnings, ILO Unemployment, November Claimant Count Unemployed, US Import Price Index and EZ17 October Industrial Production. Thursday Japan Q4 Tankan Survey, Tokyo November Condominium Sales, UK Retail Sales, Eurozone CPI, US PPI, Industrial Production, December PMIs for various European countries, Empire State Manufacturing and Philadelphia Fed Surveys plus US October Long term TIC flows and the Swiss National Bank decides on rates (currently targeting nil). Friday Eurozone October Trade Balance, Q3 Labour Costs, US November CPI and EU27 New Car Registrations.
Positioning and Technical Analysis
Very thin, little interest, and just as much worry over the state of banks’ balance sheets. Plus ça change.
Have a nice weekend!
