EZ flash PMI disappoints

New Zealand 4th Q 2011 GDP rose by just +0.3% MoM (+1.8% YoY, lower than the expectation of +2.2%) and half the forecast of +0.6% and compared with the rise of +0.7% in the 3rd Q. The NZ$ declined on the news;

Japan unexpectedly reported a trade surplus for February as exports declined by just -2.7%, less than the decline of -6.5% forecast – imports were up by +9.2%, also better than forecasts. The trade surplus came in at US$395bn. The lower Yen will help, though a pick up in the US economy is also benefiting Japanese exporters. However, with the nuclear power stations closed, higher imports of energy will keep imports elevated. Too early to assess the sustainability of February trade surplus, but Japan has and continues to bounce back – remarkable, given the disaster they faced;

HSBC’s Chinese preliminary March PMI declined to 48.1, from 49.6 in February, the 5th consecutive monthly decline. There will be increasing calls for a cut in interest rates, but to date the authorities have not obliged – they are clearly concerned about inflation. However, the Chinese Securities Journal reports that rates will be cut in the 2nd Q;

Chinese authorities cut the RRR’s for a number of branches of the Agricultural Bank of China to raise lending to rural communities. This sure is “fine tuning”. The reserve ratio for large banks is 20.5% and is expected to decline, quite possibly materially;

Another EM country, this time Malaysia, reported that GDP in 2012 will grow by a slower pace – by between 4.0% – 5.0%, from the previous estimate of 5.0% – 6.0%. Continue to believe that EM’s is not the place to be;

The Times of India, quoting a draft report from the Comptroller and Auditor General, reports that a scam, which provided, Indian coal companies “undue benefits” following the sale of coal assets, may have cost India US$211bn – over 6 times the alleged cost of the 3G mobile licence scandal. Essentially, coal assets were not sold in a public auction. Recently, the Supreme Court ruled that the previous allocation of spectrum should have been conducted on the basis of an auction – it scrapped 122 licences, awarded in 2008. In addition, illegal mining operations are a major problem in India, as I know well from my yearly visits to Goa. The report will place even more pressure on Mr Manmohan’s beleaguered government (Source Bloomberg);

Strikes against austerity measures and labour reforms in Italy and Portugal. Expect more, especially as the weather improves. However, Mr Monti stated that he would pursue his labour reform agenda even though he failed to reach agreement with the CGIL union, who are calling for a general strike. Mr Monti wants to get his labour reform plans approved by Parliament by the end of the month, as well;

Spanish 10 year bond yields rose to 5.40% – they have rise steadily from below 5.0% in recent days. Citi’s Mr Buiter stated that Spanish debt may well need to be restructured;

Die Welt reports that Germany is working on plans to raise the size of the EFSF, by leveraging the E240bn fund. I thought that Germany stated that they were opposed to leveraging some time ago. Basically looks like smoke and mirrors stuff;

German March flash manufacturing PMI came in at 48.1, well below the forecast of 51. This is a real Whoops
Flash services PMI was also lower than forecasts. It came in at 51.8, as opposed to the forecast 53.

Interestingly, the German consumer has not retrenched recently, as has been the case in the past. However, I continue to believe that (ex the US), German exports are going to struggle. Their focus on China in recent times, is vulnerable, in particular;

French flash March manufacturing PMI came in at 47.6, once again, well below forecasts of 50.3;

The EZ March flash composite PMI came in at 48.7, below the forecast and February composite PMI of 49.6 and 49.3 respectively
The EZ March manufacturing PMI fell to 47.7, from 49 in February, whilst the services PMI declined marginally to 48.7, from 48.8;

The EZ data confirms that a recession in most countries in the region (ex Germany and France) is unavoidable and in the EZ as a whole – EZ GDP contracted by -0.3% in the 4th Q of 2011;

Yesterdays UK budget did not contain any major surprises – most of the measures were leaked in advance. Indeed. it’s the 1st time that I have virtually know the contents ahead of its release. The days of budget purdah seem to be over. Essentially Mr Osborne is on track fiscally and economically – as confirmed by the Office for Budget Responsibility, who reported that their “assessment of the outlook and risks for the UK economy is broadly unchanged” since November. The current years GDP forecast is essentially unchanged (fiscal year ends on 5th April) and marginally higher next (by +0.1% more), though by less subsequently. Corporation tax is forecast to decline to 20%, having been cut to 24%. The highest rate income tax is cut to 45%, with effect from 6th April 2013. Personal allowances were raised, yet again – the target is to reach ¬£10k. There was some nonsense on PFI re road building, which seems an expensive way to do it, given low borrowing costs. Some pensioners have lost out.
However, all in all, no surprises and, in my view, pretty satisfactory;

UK retail sales declined by more than expected – they fell (including fuel) by -0.8%, in February, compared with January, the most in 9 months and below forecasts of a decline of -0.5%. YoY, sales rose by +1.0%. Furthermore, January’s data was revised downwards to a rise of just +0.3%, from +0.9% previously;

President Obama is expected to announce that he will authorise the building of one part of the Keystone pipeline – well, a sensible decision, at last – influenced by the upcoming Presidential election and the impact on his reelection chances of rising fuel prices do you, think !!!. When will these guys start doing the sensible thing. However, the pipeline will take time to complete;

US existing home sales declined marginally in February – to an annual rate of 4.59mn homes (forecast 4.61mn), though the January’s data was revised higher to 4.63mn. YoY sales were up 8.8% and median prices were up +0.3%. The market seems to be stabilising. Milder weather may have pushed some sales into January. Housing inventory rose by +4.3% to 2.43mn, as a pick up encouraged sellers on to the market., though down by -19.3% on an YoY basis. However, there is a large shadow inventory and banks are expected to step up sales of foreclosed houses, I must admit. However, I continue to believe that UIS housing data confirms at the very least stability;


I’ve been holding off putting on my Euro/US$ short again, in anticipation of an announcement that the EFSF/ESM will be enlarged. May need to reconsider given the PMI news. In addition, the Die Welt article (need to check) that the German’s are thinking of leverage (as opposed to contributing more? need to assess) is not as bullish, even though I remain of the view that the IMF will provide support, with funds raised through EM countries, in particular. Spanish government 10 year yields rose above 5.50% today – likely to rise further – not good news.

The Yen has declined against the US$, in particular and the NOK – time to take profits, me thinks. The A$ continues to weaken against the US$ – still believe it will decline further.

The Euro declined on the PMI news in the main – currently US$1.3150.
Oil (Brent) is marginally lower at US$124, though copper has declined by approx 2.0% on the weaker Chinese PMI data.
Gold is trading down – currently US$1634.

Not looking pleasant, but it is coming to a Q end and some widow dressing is likely. I remain bearish though.



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