The Australian construction performance index fell to 30.9 in September from 32.2 in August. Both residential and commercial construction is being affected. Residential declined by 3.0 points to 28.5, with commercial down 4.4 points to 29.6 and engineering down 3.0 points to 32.7. However construction of apartments rose by 3.9 points to 26.0. New orders picked up 1 point, though employment fell by 2.4 points to 33. (Source Bloomberg);
The BoJ left interest rates on hold as expected and, in addition, they announced no new monetary programmes. They added that the global economy was weakening and reduced their growth estimates for the Japanese economy – some analysts expect that the economy will contract in the 2nd half of this year. The Japanese Economy Minister attended the meeting in an attempt to force the BoJ to stimulate the economy – some BoJ easing may be on at the next meeting on 30th October. However, the BoJ has resisted the increasing political pressure;
Analysts advise that there are some tentative signs that Chinese growth is stabilising. Stan Chart report that property sales, especially in Tier 1 and Tier 3 cities, are rising. However, gambling revenues in Macau, very much correlated to the Chinese economy, fell by 9.0% in September M/M. In addition, retailers in Hong Kong have noticed a sharp drop in spending by mainland Chinese visiting during the week long Golden week holiday. The property sector does seem to be stabilising, though recovery…….;
The Indian government’s proposals to allow foreign investors to take a larger shareholding in insurance and pensions businesses are likely to face stiff Parliamentary opposition. Both houses of Parliament need to support the legislation necessary. However, the government controls just one of the chambers. Indian markets and the Rupee have risen materially following the announcement of measures to liberalise the economy – great, but delivery is now needed, which is going to be tough. The market, after the initial euphoria, seems to understand that delivery on these proposals may well be a problem.
An “error” wiped US$60bn off Indian shares in minutes this morning or 16% of market cap. A definite whoops.
Indian services PMI rose to 55.8 in September, from 55.0 in August;
Further industrial disputes in South Africa. A miner was killed today at the Anglo Platinum mine. The Rand (ZAR) is over 4.5% weaker since the beginning of the month – it lost nearly -1.5% this morning;
Russia is considering letting Western companies co-own licences to explore for oil in its Arctic waters. Previously, licences were issued to state owned groups. The Russian government wants to maintain oil production at 10mn bpd and needs Western capital and expertise. The authorities are also considering taxing oil companies, based on profits rather than, as at present, production.
The Russian Central bank (Bank Rossii) left interest rates on hold at 8.25% today as expected (increased by 25bps in September), in spite of inflation rising at the fastest pace in 10 months. A further 25bps rise is expected by the year end. CPI rose by +6.6% Y/Y in September, slightly higher than the +6.5% forecast;
It looks as if there will be no agreement on Greece at the next EU summit in mid October (18/19th October). The Troika have not yet agreed budgets/austerity measures with the Greek government. Mrs Merkel will be visiting Athens next Tuesday. She has been supportive of Greece;
The Italian PM, Mr Monti has cut regional budgets amid a scandal over corruption and excessive spending by regional politicians. In addition, he has increased the powers of Italy’s Court of Auditors to inspect regions financing and has set penalties for non compliance.
The Spanish game of making over optimistic GDP projections (to make the numbers look better, until they have to come clean) has now been found out. Indeed, even the EU has picked up on it. Mr Ollie Rehn told Spanish officials that their plans to reduce the budget deficit to 4.5% next year were based on excessively optimistic assumptions about economic growth – the Spanish have forecast that GDP will decline by just -0.5% next year, as opposed to the -1.3% to -1.5%+ by others (with downside risks). The Bank of Spain reported yesterday that the projections by the Spanish authorities were “optimistic”. However, the Spanish government are sticking to their forecasts. Come on boys, the game is up. Bail out rumours persist, but it looks like the EZ needs to fix a lot before it happens.
Interesting, unnamed EU officials report that Spanish banks will not be recapitalised before next year;
German August manufacturing orders fell -1.3% M/M, much worse than the -0.5% decline expected. July was revised lower to an increase of +0.3%, from +0.5% previously reported. The bottom line is that Germany is not immune;
The French statistics agency see no GDP growth in Q3 and/or Q4. Well, what a surprise – I think not. Indeed, a decline in GDP is far more likely.
Mr Hollande has had to retreat over proposed tax policies which, if implemented, would have raised capital gains tax to income tax rate levels;
EZ Q2 GDP has been revised lower to -0.9% Y/Y, from -0.7% previously. The 2nd half looks even weaker;
Particularly dovish FED minutes. It looks as if the FED is signaling that it is moving towards tying interest rates to specific economic outcomes, including the unemployment rate. However, to agree on specific thresholds will pose a problem.
US August factory orders were -5.2% lower, though better than the -5.9% expected;
US September NFP came in at at 114k, roughly in line with expectations (115k), with the unemployment rate declining materially to 7.8%, well below the 8.2% expected and 8.1% in August and the lowest since January 2009 – the date President Obama took over as President.
August employment was revised higher by nearly 50k, with July higher by 40k. The private sector employed a further 104k jobs, lower than the 130k expected and 97k in August. Manufacturing was disappointing, with employment lower by -16k, worse than the flat reading expected and a revised -22k in August. Government jobs rose unexpectedly, by 10k. The change in household employment rose by a massive 873k jobs (the largest since 1983), as opposed to -119k in August, a turnaround from declines in the previous couple of months. The U6 underemployment rate held at 14.7%. The participation rate increased to 63.6%, from 63.5 previously, suggesting that the headline decline in the unemployment rate is even more positive – even better news.
Average hourly earnings rose by +0.3% in September, higher than the 0.2% expected and the flat reading in August, a positive surprise. The average workweek rose to 34.5 hours, higher than the 34.4 expected – yet another positive.
The data will be a material boost for President Obama’s campaign, given that the unemployment rate declined well below 8.0%;
Outlook
Asian markets closed higher, ex India, which is lower following investors caution as to whether the government can actually implement the reforms that it has proposed. European markets are also higher. US futures rose further, helped by the better US NFP data.
The Euro, having held up, is likely to weaken following the US NFP data. Gold is off at US$1784, with November Brent at US$112.50, following a sharp rise following the spat between Turkey and Syria.
US bond yields are higher following the NFP data – the 10 year is some 10bps higher.
Have a great weekend.
Kiron Sarkar
5th October 2012
