Official Chinese PMI rose to 50.2 from 49.8 in September, in line with estimates and above 50.0 for the 1st time for 3 months. The new orders and export components rose above 50, the highest since April and in 6 months respectively. The HSBC survey came in at 49.5, up from 47.9 in September and the preliminary reading of 49.1.
The Shanghai Composite was up +1.7% today, lead by property companies on reports that a number of provinces are to ease previous restrictions on mortgages for the lower end of the market. In addition, the PBoC has injected more liquidity into markets;

The Yen weakened today in reaction to the Panasonic loss yesterday (shares were down nearly 20% today) and speculation that the BoJ will ease further. The BoJ’s minutes of the last meeting are out tomorrow. At present the Yen is trading at 80 against the US$;

The Japanese consumer electronics company, Sharp forecast a record loss of US$5.6bn for the full year, nearly double its previous forecast. In addition, they stated that there was “material doubt” as to whether it could remain in business !!!!!!!. Its shares have declined 75% this year; 

The Greek governments forecast that their debt to GDP will rise to 189% next year, rising to a peak of 192% in 2014 has come as a bit of a shock to the EZ. The 2013 budget deficit is forecast to come in at -5.2% and not -4.2%, as previously forecast, with GDP declining by -4.5%, worse than the -3.8% forecast previously (-6.5% this year). In March this year, the Troika estimated that Greek debt to GDP would peak at 167% next year. Even the IMF’s “alternate scenario” ie worse case scenario, forecast that Greek debt to GDP would peak at 171%. Its going to be interesting to see how the good and the great at the EZ sell this one. Remember, politically they (Mrs Merkel, together with Finland, Holland and Austria) cannot accept a haircut at present, even though they all know one is coming – though as far as Mrs Merkel’s is concerned, only after her general elections next year – is that possible – I think not. In addition, remember that Mrs Merkel had advised that German taxpayers faced no risk of losses on bail outs – indeed, she advised that the bail out programme would generate a profit. Oops. The FT reports that some 25 of Mrs Merkel’s coalition members are opposed to further aid for Greece. This is getting beyond surreal;

Portugal approved a package of additional tax increases in their Parliament today to meet their targets, imposed as part of their bail out. The problem is that additional spending cuts and tax increases will reduce GDp and, as a result, tax revenues – at this stage Portugal is just chasing its own tail;

The EU has imposed the 1st pan-EU short selling rules, with effect as of today. Apart from these rules being pretty silly, they are incomprehensible. The EU market regulator, the European Securities and Market Authority (“ESMA”) is not expected to issue guidance until the end of November. The regulation is the 1st time that the EU has sought to regulate transactions beyond its borders;

Mr Cameron the UK PM suffered a major defeat in Parliament over the EU budget (the opponents want a cut in the EU budget) and whilst the vote is non binding, it does undermine his authority. Some 50 Conservative MP’s rebelled. Mr Cameron is proposing that the EU freeze its budget for the period 2014 to 2020, though the EU is proposing a 5%+ increase. The Germans have suggested that the budget be capped to 1.0% of GDP. Cameron is unlikely to have any support from other EU countries at the forthcoming EU summit for his proposals. He has threatened to veto the process. Pretty tough position for Cameron to be in;

UK manufacturing PMI came in at 47.5, lower than the 48.0 expected and 48.1 in September. The new orders component came in at 47.7, as opposed to 49.9 previously. Manufacturers cut production and shed labour.
Irish October manufacturing PMI came in at 52.1, as opposed to 51.8 in September. The new orders component rose to 52.7, from 52.3 in September.
Greek October manufacturing PMI came in at 41.0, below the 42.2 expected;

The ADP US October employment numbers came in at 158k, much better than the 131k expected and the revised number of 88.2k (162k previously) in September. The basis of computing the number has been changed to better align with the NFP data, which is due out tomorrow – the forecast is for 125k jobs to have been created;

US weekly jobless claims for the week ended 27th October came in at 363k, better than the 370k expected and the revised 372k previously. Continuing claims came in at 3.264mn, somewhat higher than the 3.25mn expected and 3.259mn  previously.
US planned layoffs rose by 41% in October to the highest level in 5 months, according to Challenger, Gay & Christmas;

US non farm Q3 productivity came in at +1.9%, as opposed to +1.8% expected and +2.2% previously;
US October manufacturing PMI came in at 51.0, as opposed to 51.3 expected and 51.3 in September;
US October consumer confidence came in at 72.2, as opposed to 73.0 expected and 70.3 previously;
US September construction spending rose by +0.6% M/M, slightly lower than the +0.7% expected and the revised decline of -0.1% in August;

US October ISM came in at 51.7 M/M, better than the 51.0 expected and 51.5 in September, the highest since May 2012; 
ISM prices paid came in at 55.0 M/M, better than the 56.0 expected and 58.0 in September;
ISM employment came in at 52.1 M/M, weaker than the 54.7 previously;
ISM new orders came in at 54.2 M/M, much better than the 52.3 previously and, once again, the highest since May 2012;

The odds of President Obama being reelected has risen to 68.0, according to Intrade.

Outlook

Asian markets closed higher, with European markets following – the main markets closed about 1.0%+ higher. US markets are up by about 1.0% higher at present.

The Nikkei closed marginally higher today, in spite of the much weaker corporate results announced by Sharp. However, the Yen is weaker – currently trading at Yen 80.12 against the US$, given the weaker economic news in Japan, as opposed to the better US data. The Euro opened stronger but sold off and is currently  US$1.2937, with gold at US$1715 and Brent lower at US$108.28. Sterling is rising as more analysts expect the BoE to be on hold with its QE programme this month. They announced that they had completed their gilt purchase programme to reach their £375bn target

The better Chinese PMI data has helped markets today, together with start of the month activity. Whilst analysts argue that the odds of a Greek rescue are better than 50%, its not a shoe in. In a tele conference today, EZ finance ministers agreed, in principle, to extend the repayment period and reduce interest rates on bail out funds. The IMF proposal for a haircut was rejected, as it was politically unpalatable. Mr Schaeuble stated today that reaching agreement by 12th November was an “ambitious target”, reiterating that Greece needed to meet its commitments. The privatisation legislation was narrowly passed in the Greek Parliament. 

Kiron Sarkar

1st November 2012

Category: Think Tank

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