BoJ minutes, in respect of the 4/5th October meeting, report that some of its members believe that Japan may have entered a “recessionary phase”. 3rd Q GDP data is to be released on the 12th November and a contraction is expected (-5.1 Y/Y forecast by Nomura – Wow, seems a bit extreme), with a further decline next Q. Goldman’s have reduced their forecast of Japanese GDP for the fiscal year ending in March 2013 to +1.0%, from +1.9% previously. The Yen declined against the US$;
Australian PPI came in at just +0.6% Q/Q in the 3rd Q and +1.1% Y/Y, as opposed to expectations of +1.2% Q/Q and +1.6% Y/Y. The RBA is expected to cut rates at its next meeting on 6th November;
The Japanese authorities are to call an additional session of Parliament for 30th November to pass a bill to enable the country to borrow. To date the opposition have refused to allow the government to raise the finance necessary. Whilst some kind of compromise is likely, the uncertainty ahead of that Parliamentary session should put additional pressure on the Yen;
The Chinese Yuan has rise in recent months. However, futures are trading at the largest discount to the spot rate in 4 years, which suggests that the Yuan’s appreciation will reverse. Something to do with the impending US elections, do you think?
Spracht advises that deposits at the 4 largest Chinese banks declined by Yuan 1.8bn in the 1st 28 days of October – will put pressure on subsequent lending, unless RRR’s are reduced;
Recent Chinese PMI data reveals a sharp increase in input prices – inflation coming?. In addition, the employment component is below the neutral 50 level. However. official data suggests that unemployment is stable. Hmmm. Me thinks that something is , lets just say, amiss;
The Greek Parliament has been asked as to why 2 former finance ministers did not pursue a list of tax evaders, provided to the Greek authorities in 2010, by Mrs Lagarde. Mr George Papaconstantinou (who was given the list by Mrs Lagarde) and Mr Venizelos (now head of Pasok, though formerly the finance minister) are to be investigated. A Greek journalist was acquitted, having been charged under data protection law, for releasing the list previously. There are charges that the list has been doctored by Greek authorities and apparently has now been mislaid. Yeah right – don’t worry, the French have another copy.
The Greek authorities advise that the proposed cuts in pensions are unconstitutional. Since when have the Greeks been concerned about their constitution?. The recent privatisation legislation just passed, suggesting a tough fight over the budget. A number of Greeks MP’s ,belonging to the Pasok party, have resigned. The upcoming vote on the budget/austerity measures is going to be tight, to say the least;
Italian October manufacturing PMI came in at 45.5 M/M, slightly higher than expectations of 45.3 and 45.7 previously. However, it was the 15th consecutive monthly decline;
Spanish October manufacturing PMI declined to 43.5 weaker than the 44.1 expected and down from 44.6 in September – the lowest since July. One glimmer of light – the new export orders component rose to 50.1. However, the problem is that Spanish industrial capacity is limited. Cant see any respite for Spain – in the past construction activity was thought to represent over 20% of GDP – that’s not coming back for 5 years at the very least – quite probably much, much longer;
German and French final October manufacturing PMI came in slightly higher than the preliminary numbers , at 46.0 and 43.7 respectively, though still confirming contraction. Note the French October reading – its below Italy’s and around Spanish levels. Even worse, the new orders component came in at just 40.3, up marginally from the 39.6 in September, but the 16th consecutive monthly decline. In addition, PMI’s have contracted in both France and Germany for 7 and 8 months respectively. The October final EZ manufacturing PMI came in at 45.4, slightly better than the 45.3 expected, though below the 46.1 in September;
Mr Schaeuble states that there will be no EZ bank recapitalisation until the banking supervisor is in pace and fully functioning. That’s a real problem for Spain and pretty silly. the EZ cannot hope to recover until its banks are fixed;
UK October construction PMI rose to 50.9, up from 49.5 in September and well above the forecast of 49.0 – the highest reading since July. This should not have come as a surprise. UK construction, particularly London based, was on hold ahead of and during the Olympics – its now coming back. I continue to be long UK property (London based) and the US/UK building materials sector. Sterling rose on the news and the Euro is currently hovering around 0.8015 – I would expect Sterling to improve further, especially if the BoE keeps its QE programme on hold at £375bn at its next meeting on 8th November, as is expected. The decision is expected to be close;
The much anticipated US October NFP data came in at +171k jobs created, as opposed to 125k expected and an upwardly revised +148k in September (+114k previously). Payrolls for the prior 2 months were revised higher by +84k. Private sector payrolls rose by +184k M/M, much higher than the +123k expected and the upwardly revised 128k in September. Even manufacturing came in better – some 13k jobs were created, as opposed to -5k expected and an upwardly revised -14k in September. The unemployment rate rose to 7.9% from 7.8%, as expected. The participation rate improved marginally to 66.8%, from 63.6% previously. The only negative that I can see is that the average work week declined to 34.4, as opposed to 34.5 expected. The numbers will be a boost to the Obama campaign;
Stan Chart and BBVA have been included on the list of global banks that need to hold extra capital, given their importance to the world’s financial system, according to the Financial Stability Board. On the other hand, Lloyds, Dexia and Commerzbank have been removed from the list. Banks on the list have to hold between 1.0% to 2.5% of additional equity capital in addition to their Basel 111 requirements, to between 8.0% to 9.5% in 2016. Citi, J P Morgan, Deutsche and HSBC have to hold the highest buffer, amounting to 2.5%;
Asia has, in the past, saved. However, it looks like Asian savings are declining and companies are now more reliant on debt, as current account surpluses decline due to higher consumption. Morgan Stanley reports that declining exports and increasing domestic demand has reduced the current account surplus from a peak of +7.4% of GDP in 2007, to just 2.0% in summer this year. Wow. When this crisis finally ends, its going to be a very different world. In addition, Asian debt markets are going to become much more important in coming years. India, Indonesia, Thailand and Korean corporates are likely to tap the bond markets in particular. (Source FT);
Asian markets closed materially higher on better US economic data yesterday. European markets were mixed, but have risen sharply following the release of the US NFP data. US futures suggest that markets will open about -0.3% higher. The Euro is weaker at US$1.2867, with Gold below US$1700, at US$1693 and oil at US$108.62.
Still concentrating on the currencies – essentially short the Euro and the Yen, against the US$, though also short the A$ and the Rand.
Well, I suppose its all about the US Presidential elections next week.
2nd November 2012
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