Japan downgrades its economy, yet again

The Japanese government downgraded its view on the Japanese economy, once again. The report, released today, reduced forecast employment, consumption, investment and corporate profits. The head of the opposition LDP party Mr Abe (expected to be the largest party in the coming general election) repeated his call for aggressive monetary action to stimulate the economy and weaken the Yen and, in addition, suggested introducing legislation to curtail the independence of the BoJ. The Nikkei has reacted positively to a potential change of government – its up over 4.0% over the last 2 days, as the Yen weakens;

The EZ is pressing to settle the issue of providing further aid to Greece on the 20th November. The IMF, Mrs Lagarde will attend the meeting;

The EZ September trade surplus (seasonally adjusted) rose to E11.3bn, higher than the E9.5bn expected and as opposed to E1.7bn in the corresponding period last year. Exports fell by -1.1% M/M, though imports declined by -2.7% reflecting weaker demand. German exports declined by -1.5% in October M/M, with imports -2.5% lower;

French authorities are finalising legislation which will force its banks to separate parts of their investment-banking operations into separate entities. Details are not available as yet, including which activities will need to be transferred into the separate activities;

US October CPI came in at +0.1% M/M (+2.2% Y/Y), in line with expectations though much lower than +0.6% in September;

US November Empire State manufacturing index came in at -5.22, better than the -8.00 expected and -6.16 in October. The new orders component rose to 3.08, as opposed to -8.98 previously. The employment component came in at -14.61, from 1.08 previously, the lowest since July 2009, with new orders at 3.08 as opposed to -8.98 previously. Hurricane Sandy impacted the numbers;

The November Philly Fed index declined to -10.7, much lower than the 2.0 expected and 5.7 in October. New orders came in at -4.6, from -0.6 previously, with prices paid at 27.9 as opposed to 19.0 previously. The employment component came in at -6.8, versus -10.7 previously. The expectations component came in at 20.0, lower than 21.6 previously. The numbers were impacted by Hurricane Sandy;

US jobless claims rose by 78k to 439k in the week to 10th November, higher than the 375k expected. The 4 week moving average rose to 384k, with continuing claims rising to 3.334mn for the week to 3rd November. The numbers were impacted by Hurricane Sandy;

The US National Association of Retailers forecasts that retail sales will rise by +4.1% Y/Y to US$586bn in the period from Thanksgiving day (23rd November) through the holiday season, their most optimistic forecast since 2007;

BP has agreed to pay an US$4.5bn fine to settle criminal charges brought against it by the US Department of Justice. The company still faces civil claims from federal, state and local authorities;


Whilst the Nikkei and Hong Kong closed higher, Asian markets were mainly lower. European markets are also weaker. US futures suggest a flat to slightly lower open, though are improving. Gold is trading at US$1710, with December Brent at US$108.60. Markets continue to be fragile. However, some “fix” on Greece is likely next week. The politicians start talking about the US fiscal cliff today – expect these talks to go to the wire. Whilst, I accept that it will create uncertainty, US economic data is improving and the market continues to believe that some deal will be done. However, Israeli tanks are collecting on the Gaza border, which is a real concern – Brent has not reacted materially.

Still believe that markets are oversold, with some bounce back likely. Have bought some UK financials and global energy companies.

Have a great weekend.

Kiron Sarkar

16th November 2012

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