Boehner’s Plan B fails

Foreign ownership in Japanese debt has increased 11% YoY, with total debt held outside Japan rising to a record 9.1% (US$ 1tr) as at 30th September. However, I would guess that the percentage ownership will be lower at the end of this year. It is broadly accepted that Japan’s disproportionate local holding of its debt protects it from adverse fluctuations by international markets and that increasing foreign ownership may pose risks for this stability. The BoJ owns roughly 11.1% of outstanding Japanese government debt. (Source – Financial Times/Bloomberg);

Mr Narendra Modi has won a landslide victory in the western Indian state of Gujarat. Modi has been tipped to be BJP’s candidate for PM at the elections in 2014. Modi is seen as a Hindu nationalist, whereas the Congress Party maintains an inclusive multi denominational perspective.

Italian December Consumer Confidence seasonally adjusted came in at 85.7 M/M, somewhat better than the 85.1 expected and the revised 84.9 in November. A slightly better number than the recent weaker economic data.
Mr Monti is expected to step down as PM today. He intends to hold a press conference over the weekend to announce his future plans – looks as if he will run for PM. Polls suggest he will attract some 20% of votes;

German January Consumer Confidence (GfK survey) came in at 5.6 M/M, slightly lower than the 5.9 expected and the revised 5.8 in December;

French business confidence indicator came in at 89 M/M, in line with expectations and 88 in November. The outlook indicator improved marginally to -38 M/M, better than the -42 expected and -42 in November;

Eurozone Consumer Confidence (December) came in at -26.6 in line with expectations of -26.5 (prev -26.9).

Final UK Q3 GDP came in at +0.9% Q/Q, marginally lower than the +1.0% previously. Y/Y, GDP was flat, marginally better than the -0.1% expected.
UK November public sector net borrowings came in at £17.5bn, higher than the £16bn expected, as income tax receipts were 12% less than expected. The budget deficit (year to 5th April 2013) came in at £92.7bn, up from £84.4 Y/Y, as at the end of November. I continue to believe that the UK will lose its AAA credit rating next year;

The Philly Fed Index rose materially to +8.1 (Exp -3.0) in December from -10.7 in November. The new orders component surged to +10.7, from -4.6 in November, with employment up to +3.6, from -6.8. Prices paid was relatively unchanged at +27.8, from +27.9 in November. Importantly, the expectations component (looking 6 months ahead) rose to 30.9, from 20.0. Certainly a very good piece of data, though probably reflecting the recovery post Hurricane Sandy;

US existing home sales rose by +5.9% to 5.04mn homes at an annual rate, the most in 3 years and above expectations of a rise of +2.3% to an annualised rate of 4.9mn homes. I will repeat – housing will make a material positive contribution to US GDP next year, which suggests to little old me that current US GDP forecasts need to be revised higher;

Mr Boehner, the House Speaker called off a vote on his Plan B last night, as he did not have enough support from his colleagues to pass the bill which, in any event, was not going to pass the Senate. Seems to have been a crazy tactic and could jeopardise his position early in the New Year. It looks as if the resolution of the fiscal cliff will carry over into the New Year, with President Obama proposing a tax cut on most Americans – probably for those earning up to US$500k. Its all politics, but the markets have reacted negatively;

US personal income rose by +0.6% more than the +0.3% expected and a flat reading previously.

Consumer spending was up 0.4% (prev -0.1%) in line with expectations but the largest rise since February 2012.

Durable goods orders rose by 0.7%, higher than the expected 0.3% (prev 1.1%);

The Brazilian Central Bank has forecast growth of 1% next year. In efforts to encourage investment, Brazil has sanctioned the privatisation of the upgrade and management of Brazil’s public airports, including Galeao in Rio. The Central Bank also increased their gold holding to 67.2 tonnes and is at the highest since August 2000.


Asian markets closed lower following the withdrawal by Mr Boehner of his Plan B. European markets are around -0.5% lower, with US futures over -1.0% down.

Spot gold is trading around US$1650, with February Brent at US$109.79.

The Euro is trading at US$1.3215, with the Yen slightly stronger at Yen 84.10 against the US$.

I continue to add to my equity holdings.

Kiron Sarkar

21st December 2012

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