Japanese consumer prices, excluding fresh food, were unchanged in October Y/Y, somewhat higher than the decline of -0.1% in September. The Japanese government has approved a 2nd round of stimulus in just over 1 month amounting to Y880bn (US$10.6bn), including capex programmes, employment measures and aid to small businesses. Industrial output rose unexpectedly by +1.8% in October M/M, much better than the -2.0% expected and -4.1% in September – mainly due to Apple related products. I continue to believe that the Yen will weaken further into and after the elections, assuming the LDP party comes in as the largest party with Mr Abe as PM. At present, the LDP is leading in the polls with 23% support, followed by its likely partner, the Japan Restoration Party (15%), with the current PM’s party (the DPJ) lagging at 13%. Mr Abe beat the nationalist drum today, which in due course is going to add to the friction with China, in particular.The Yen continues to weaken. Please note, I remain short the Yen;

Indian GDP declined to +5.3%, in Q3, down from +5.5% in Q2, though in line with estimates – matching a 3 year low. Previous growth levels have been around 8.0%.  The government has announced a number of economic reforms, with a (no-binding) Parliamentary vote on the politically sensitive plan to allow foreign investors to take a majority stake in multi-brand retail operations due shortly. Structural reforms are much needed, though opposition by vested interests, combined with bureaucratic delays and corruption have stifled the Indian economy – however, some changes are expected, which clearly are much needed. Having said that the Indian markets continue to rise, in anticipation of structural reforms

The Indian Central Bank, the RBI meets on the 18th December, though is unlikely to cut rates. However, a rate cut in Q1 next year is pretty likely;

Italian provisional seasonally adjusted October unemployment came in at 11.1% M/M, higher than expectations of 10.9%, and 10.8% previously. There were hopes that Italy was stabilising, but recent data has been weaker than expected;

German October retail sales declined -2.8% M/M, much worse than the -0.4% expected and the downwardly revised +0.5% in September. Y/Y, October retail sales declined by -0.8%, much worse than the -0.3% expected. Construction and consumption was supposed to keep the German economy ticking over – I don’t think so;

As expected, the Bundestag approved the “deal” on Greece by 473, out of 584 Bundesatag members who voted. However, Mrs Merkel failed to secure an absolute majority from her own coalition, having to rely on the opposition to secure the approval. The opposition parties, however, accused Ms Merkel of not telling the German public the truth. Importantly, dissent amongst Mrs Merkels coalition is not increasing;

French October consumer spending came in -0.2% M/M, in line with expectations and a downwardly revised unchanged reading in September.

Y/Y, consumer spending is -0.5% lower, bad news as the French economy is relatively dependent on consumption;

EZ estimated inflation declined to +2.2% in November, from +2.5% in October and lower than the +2.4% expected. It was the lowest reading since December 2010. Inflation should decline further. The ECB is likely to cut interest rates, the question is this year or 1st Q 2013 – I would go for next 1st Q 2013;

UK November consumer confidence in the UK, whilst negative at -22, was much better than the -30 expected and an 18 month high. UK economic data is all over the place, though I believe that the UK economy is performing better than believed;

The UK BoE has warned UK banks that they need to raise between £20bn and £50bn in equity to strengthen their balance sheets, as they have not written off enough in respect of their “assets” and had not made sufficient provisions for the recent scandals eg LIBOR . Well, no great surprise, as a number of European banks have exaggerated asset values;

US consumer spending declined by -0.2% in October, lower than the +0.8% in September and the unchanged expected, the 1st decline since May.

Personal income was unchanged in October, lower than the +0.4% gain in September and +0.2% expected.

The savings rate rose to +3.4% from +3.3% in September;

The numbers were affected by Hurricane Sandy;

US October PCE deflator came in at +0.1% M/M, in line with expectations and +0.3% in September.

Core PCE came in at +0.1% M/M, lower than the +0.2% expected and +0.1% in September;

Chicago November PMI came in at 50.4, as opposed to 50.5 expected and 49.9 in October. Whilst it was the 1st above 50 reading, new orders declined materially (to the lowest since June 2009), and prices paid surged (to the highest since March). However, the employment component was better;

Brazilian GDP rose by just +0.6% in Q3 Q/Q, about half the rate expected. Y/Y GDP rose by just +0.9%, well below the +1.9% expected. A very definite Oops, given the recent rhetoric by the finance minister;

Outlook

Asian markets closed higher, including China. European markets are marginally higher, with US markets flat to lower.

The Euro has bounced back up to US$1.3009 against the US$ (will still wait before I short), with the Yen at 82.52 against the US$.

Gold is off, currently trading at US$1712, with January Brent at US$110.62 – still remain bemused at the strength of Brent.

Usual politicking in the US re the fiscal cliff, though most (including myself) expect a deal to be done, though quite possibly just after 31st December 2012.

Markets are taking a pause – still feel that there will be time to buy the markets in due course.

Have a great weekend.

Source:
Kiron Sarkar
30th November 2012

Category: Think Tank

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