Political concerns in Spain and Italy weigh on markets
China’s January non-manufacturing PMI rose marginally to 56.2 from 56.1 in December, the 4th consecutive monthly rise. The retail sector improved apparently, with civil engineering and infrastructure construction appreciating to its highest since March 2012;
Inspite of firm denials, the Spanish PM continues to face criticism over allegations that he received cash payments from property companies over many years. A poll taken by Spanish newspapers reports that support for his Popular Party has dropped by 6 points to just 24%, whilst 77% of those polled disapprove of Mr Rajoy. Whilst there is no immediate threat to Mr Rajoy – the opposition Socialist Party is weak and any investigation likely to last years, this scandal will not die down. The threat of civil disorder intensifies. With the economy continuing to decline, the government will face considerable pressure in coming months. You still want to buy the Euro?;
Mr Berlusconi continues to suggest impropriety/incompetence in respect of the Monte dei Paschi bailout. In addition, he has “promised” that, if elected, the property tax imposed by Mr Monti will be abandoned, with previous payments refunded, together with all sorts of other tax concessions. His plan is to pay for this largess by pursuing people with Swiss bank a/c’s. Basically, an agenda which will appeal to the masses. My Italian friends tell me that whilst they remain of the view that one should not write off Mr Berlusconi and, even though they do not expect him to win in the upcoming general elections, he may obtain a blocking majority in the Senate. Is so, he becomes a potential player in any coalition. He has “promised” that he will not seek the role of PM. The uncertainty is yet more negative news for the Euro;
EZ December PPI came in at -0.2%, as expected and -0.2% in November. Y/Y, PPI came in at -1.2%, as expected.
The EZ sentix index (measuring EZ sentiment) improved, though was still negative at -3.9 in February, from -7.0 in January, though lower than the -1.7 expected;
EU leaders are to try and reach an agreement over the EU budget, yet again. Germany is trying to broker a deal. Its going to be a case of trying to herd cats. However, EU officials suggest that a compromise will be reached;
The UK Construction Index was unchanged at 48.7, though lower than the 49.2 expected. I continue to believe that the UK economy is doing better than the data suggests, but I must admit the data continues to suggest otherwise. Nevertheless I will stick with my view for the next couple of months. After that I will put the dunce cap on;
President Obama continues to insist that the US needs additional tax revenues, together with spending cuts. This is not going to go down well with Republicans. The issue of the automatic sequester, unless a deal is reached, is coming up at the beginning of March – still looks like an automatic sequester is the most likely option, on the basis that both sides fail to agree a deal;
Asian markets closed mixed, though the Chinese and Japanese ended higher. European stocks, having opened higher are sharply lower, in particular Italian and Spanish markets, reflecting the increasing political concerns in those countries. Spanish bond yields rose, reflecting the corruption allegations against the Spanish PM, Mr Rajoy, though have come off their highs. Essentially a bit of a reality check, following the recent euphoria. US futures suggest that the markets will open some -0.5% lower.
The Euro is weakening, following the political problems in Italy and Spain and, in addition, the French PM is talking down the currency. The ECB meets this week – a rate cut is not expected. As usual Mr Draghi’s comments will prove the most important.
Spot gold is trading around US$1663, with Brent finally lower at US$115.58. Brent has been hit by suggestions that the US will speak directly to Iran and that the a meeting has been arranged with the Iranian government.
Essentially a bit of a risk off move, though I remain cautious to negative on markets and will be reducing my holdings.
4th February 2013