Murdoch deemed unfit to run a global company

The Australian Central Bank, the RBA, has unexpectedly cut interest rates by 50bps today, reducing its benchmark interest rate to 3.75%. Many, including myself, had expected the RBA to have cut rates earlier and the higher than expected cut of 50bps (25bps was expected) reflects, in my humble opinion, the fact that they have delayed for from doing so for far too long. The RBA cites that economic conditions are weaker and that inflation is trending downwards. Residential home prices are also declining. The A$ weakened sharply on the news – a lot more to go in my opinion;
 
The Australian PM, Ms Gillard is under pressure, yet again. It seems increasingly unlikely that she will be able to hold on. Recent polls indicate that support for her Labour party has dropped to just 27%, whilst the Liberal Party’s support has risen to an 11 year high of 51%;
 
South Korean exports declined for the 2nd month in April – overseas shipments were down -4.7% YoY (-1.4% in March) a much larger decline than the -1.1% expected. A shorter working month could have impacted. The Government has reduced GDP forecast to +3.5% this year, from +3.7% a few weeks ago. However, inflation declined to a 21 month low in March of +2.5% YoY, lower than the +2.8% expected;
 
Robert Hardy of Geostrat reports that Chinese authorities are making extremely belligerent noises over the continuing standoff between China and the Philippines over ownership of the Scarborough Shoal. The Defence Minister Geng Yansheng comments sound like he’s  playing gunboat diplomacy. Clearly the Chinese authorities are keen to distract from the sacking of Mr Bo. Robert points out that China has never in it’s history backed off from a territorial claim, though equally the Chinese do play a long game. This one could get serious. Watch it carefully, though the impact of a military conflict would be disastrous for China;
 
Chinese official PMI rose for the 5th month to 53.3 in April, from 53.1 in March, slightly lower than the 53.3 expected, though the highest for more than a year. The HSBC survey suggests that manufacturing is contracting for the 6th consecutive month. However, normally the peak reading is in April, which suggests a slowdown in coming months. The exports component rose to 52.2, from 51.9 and factory output to 57.2, from 55.2;
 
Indian exports declined by 5.7% YoY in March, to US$28.7bn, the 1st decline in 2 1/2 years. However imports soared by 24.3% to US$42.6bn, leaving a trade deficit of US$13.9bn. With an expanding current account deficit and a large budget deficit, the economic situation in India is getting materially worse. At some stage, India will find it difficult to raise the finance it needs if this continues. The Rupee looks particularly fragile and has declined by over 16% YoY, against the US$;
 
The Portuguese Government is to reduce its primary spending limit by 3.2% in 2013 and, in addition, lower the limit for total spending by 2.1%. Its budget deficit is expected to amount to -4.5% this year (3.0% next), with GDP declining by -3.3%. Debt to expected to peak at around 115% in 2013, according to IMF forecasts;
 
Ms Le Pen is expected to tell her supporters not to vote in this Sunday’s election. If that is the case, its bad news for Mr Sarkozy as Le Pen’s supporters were more likely to vote for him (70%) than Hollande (30%);
 
A UK manufacturing index declined to 50.5, from a downwardly revised 51.9 in March and a forecast of 51.6. “Manufacturer’s reported a slowdown in activity” reports the CIPS CEO, with, worryingly, a slowdown of new orders. The new orders component declined to 49.2 in April, from 52.4 in March. Total output declined sharply to 51.8, from 54.3. However, manufacturing represents just 16% of the UK economy;
 
By a majority of 6 to 4, the UK culture, media and sports Parliamentary committee reports that Rupert Murdoch is not a fit person to run a global company. Wow, strong stuff. The report stated that the company News International, made false statements, failed to disclose documents and showed an instinct to cover up rather than confront wrongdoing. There will be implications, as a result, but the crucial issue is whether this is taken up in the US; 
 
Consumer spending (which represents well over 70% of the US economy) rose by +0.3% in March, though lower than the +0.4% expected, following an upwardly revised +0.9% (previously +0.8%) in February , the largest increase since August 2009. Incomes rose by +0.4%, the most in 3 months. The wages and salaries component of income rose by +0.3% MoM, following an 0.4% rise in the previous month. Core inflation rose by +0.2% in March, in line with forecasts. PCE rose by +2.0% YoY, from +1.9% in February – the FED’s target is 2.0%. The savings rate rose marginally higher to 3.8%, from 3.7%;
 
Chicago  PMI came in at 56.2 in April, from 62.2 in March and below the decline to 60 forecast. The production component declined to 57.1, the weakest since September 2009, from 68.6 previously. New orders fell to 57.4, from 63.3, the lowest in 11 months. However,  employment rose to 58.7, from 56.3 previously. Looks like manufacturing is now slowing in the US, as it is globally;
 
Following on from Chicago, the Dallas FED manufacturing outlook came in at -3.4, from +10.8 previously, a 7 month low. New orders were -1.0, as opposed to -0.3 previously and employment at +11.8 versus +21.7. However, prices paid came in at +21.2, from +27.7 previously;
 
Outlook
 
European markets (other than the UK, which is modestly higher) are closed due to a public holiday. The Euro is flat at US$1.3252. US futures suggest a higher open. Spot Brent is trading at US$119.20, with gold at US$1662.
 
Market performance recently does not fill me with enthusiasm. Risks materially outweigh potential upside, in my humble view.
 
I remain bearish
 
Kiron Sarkar
 
1st May 2012