Chinese imports rose by less than forecast in June. They were up +6.3% YoY, much lower than the +11.0% expected. Exports rose by +11.3%, much lower than the +15.3% rise in April, though better than the +10.6% forecast. Exports to Europe declined by -0.8%, though rose by +13.6% to the US – not good news for China in an US Presidential election year, especially as Mr Romney is keen on China bashing. The weaker import data, combined with stronger exports, resulted in China posting a trade surplus of US$31.7bn in May. Great, but remember Premier Wen’s recent remarks that the Chinese authorities will intensify “fine tuning” ie a greater stimulus programme is coming, especially as pressure on the economy remains “relatively large”. Chinese GDP look as if it will come in closer to 7.0%, rather than the 8.0%+ forecast by many;
Interesting view by UBS on the Euro peg by the SNB.  Apparently, Switzerland’s forex reserves are just 60% of GDP, whilst Singapore, Qatar and Abu Dhabi’s forex reserves are 2 to 3 times their GDP. Stretching the point me thinks. Will have to look at this peg more closely. However, the Swiss economy minister confirmed that the SNB will continue to defend the peg by selling an unlimited amount of SFr’s, if necessary;
Surprisingly, Italian industrial production rose by +0.8% in May MoM, a much better performance than the -0.6% decline expected. I continue to believe that Italy has greater flexibility to recover, than believed by most;
I need to check this carefully, but I get the impression from some of Monti’s statements today that the EFSF/ESM would buy peripheral bonds if countries met their budget targets, in particular. Holland and especially Finland have objected and Mrs Merkel has not openly supported (though, I suspect will agree) such a move. Monti added that he would not stay on post his mandate and, in addition, that Italy may tap the ESM (for its banks?), though did not need a full bail out. Italy is to ratify the ESM by the end of July;
The EZ finance ministers agreed to provide Spanish banks with E30bn by the end of this month. The funds will be paid into the Spanish bank rescue fund, the FROB and, as a result, increase Spain’s debt to GDP. However, once the single banking regulator is established, the AIM (not convinced that this is a done deal at all) is to inject the funds directly into Spanish banks. The loan will have an average maturity of 12.5 years, though a portion will run for 15 years. In addition, as reported yesterday, Spain has been given more relaxed budget targets and more time (till 2014) to bring its deficit below 3.0%. There is no doubt that EU/ECB/IMF representatives will be all over Spanish banks in coming months – ie no condition light deal as alleged by the Spanish. However, Spanish bond yields declined materially, probably more as a result of the statement by the German Constitutional Court this morning.
This move will help Ireland to obtain a better deal in respect of the bail out funds it received following the bail out of its banks;
In spite of Spanish objections, the Luxembourg representative, Mr Mersch was indeed appointed, subject to confirmation (EU finance ministers approve), onto the ECB’s 6 member Executive Board – Spain had wanted its candidate. Another Luxembourg representative, Mr Jean Claude (it’s OK to lie when you deem it necessary) Juncker has been reappointed Chairman of the euro finance meetings. Mr Klaus Regling, currently head of the temporary EFSF, is to head up the permanent ESM. Essentially, the peripheral EZ countries are losing some power;
Interestingly, the Portuguese have forecast that this years GDP decline will amount to -3.0%, rather than the -3.4% previously forecast. 2013 is unchanged at zero. Exports are doing better than initially thought. However, they admit that they will have to enact additional measures to meet their deficit targets;
Most importantly, in opening remarks, the German Constitutional Court stated today, that the German Parliament’s approval of legislation dealing with the EZ/euro  must “be respected”. The Court emphasized that the legislation was passed in the upper and lower house by a 2/3rds majority. The court is to decide whether the legislation should be stopped in due course. The German President will only sign off on the legislation re the creation of the ESM and the fiscal compact once the Constitutional Court has opined;
UK factory output unexpectedly rose by +1.2% in May MoM, as opposed to a decline of -0.1% forecast. Overall, industrial output increased by 1.0%, once again well above expectations. Just confirms the (very?) mixed UK data, though I remain of the view (as do many others) that the UK is performing better than that reported by the ONS – the UK’s Statistical Office. The BoE is also suspicious of ONS data;
Marcus Agius, Chairman of Barclay’s, testified today. A far more polished performance than Bob Diamond’s. Looks like Mr Diamond will be recalled;
Mr Romney appears to be raising more funds than President Obama. In June, Mr Romney raised US$106mn, as opposed to Obama’s US$71mn, beating President Obama for the 2nd consecutive month;
US May consumer credit rose by +US$17.1bn, much higher than the +US$8.5bn expected and +US$6.5bn in April. Credit card debt amounted to +US$8bn, the highest since November 2007, with non revolving credit up by +US$9.1bn;
The US NFIB (small business) optimism index for June came in at 91.4, lower than the 93.5 expected and May’s 94.4;
Outlook
Asian markets` closed lower, though European markets rebounded following the initial (and I stress initial) statement by the German Constitutional Court. Us futures suggest a higher open. Brent is trading around US$99.30, with gold at US$1598. The Euro has recovered slightly and is at US$1.2294, though off its lows.
The German Constitutional Court announcement is certainly helping today. Monti’s comments are intriguing (need to be careful, as he has tended to exaggerate in the past, though I cant see his upside this time around), though certainly make sense to little old me. Indeed, could well be positive.
Kiron Sarkar
10th July 2012

Category: Think Tank

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