First sign of a Chinese stimulus programme ?

The Australian economy grew by +0.5% in Q3 Q/Q, slower than the +0.6% in Q2 and +1.3% in Q1. GDP rose by +3.1% Y/Y, in line with market expectations. The government sector was the main drag, with state and federal expenditure lower. The mining sector showed clear signs of slowing, as did household expenditure, which was up just +0.3%, the lowest in over 2 years. The A$ is flat on the news;

The BoJ deputy governor hinted at further monetary stimulus today, stating that the central bank will debate the issue. The Yen rose above 82 against the US$ – currently Yen 82.08 against the US$;

Chinese authorities are to abolish limits on investment in banks by its insurers. In addition the new leadership are pressing ahead with a policy of urbanisation, which suggests another bout of fixed asset expenditure. New residential property prices in Tier 1 cities saw the 1st positive growth in the year. The HSBC November services PMI was lowered to 52.1, as opposed to 53.5 in October. However, HSBC advises that the sector was becoming more optimistic and were hiring more employees. The Shanghai composite rose by +2.9%, the most since September (and back above 2,000) with Hong Kong up over 2.0%. Looks as if the Shanghai Composite will rise further. Copper hit a 7 week high on expectations of increased Chinese demand. Miners should improve on the news;

Indian November services PMI came in at 52.1, as opposed to 53.8 in October, a 13 month low. The proposal to allow foreign retailers to enter the Indian market is being voted today in the lower house;

Dow Jones reports that the Spanish government will seek a bail out, if the ECB will guarantee that its 10 year bond spread will be no more than 200bps above equivalent German yields. Yeah right. The ECB will not to offer such a guarantee. In addition, Germany is not keen on Spain requesting a bail out/ECB assistance, given Mrs Merkel’s problems with certain members of her coalition, who are opposed to bail outs/further aid. The saga continues;

German finance minister, Mr Schaeuble blocked moves to create a banking union yesterday. The Germans object to ECB supervision of their regional banks. The UK objects to the EU proposals on banking union, without safeguards on the ECB’s ability to set technical standards, which France and Germany object to. Finance ministers are to meet to resolve this issue, which was due to be settled by the end of the year;

EZ November final services PMI rose to 46.7, higher than the 45.7 expected and 46.0 in October. Germany was better than expected at 49.7 as opposed to 48.0 expected, though France was lower (45.8, as opposed to 46.1 expected) as was Italy (44.6, lower than the 45.9 expected). Spain was higher at 42,.4, from 41.0 in October.

The EZ final composite index came in at 46.5, higher than the flash reading of 45.8;


EZ October retail sales came in at -1.2% M/M much lower than the -0.2% expected and the largest decline since April 2012, Y/Y retail sales were down -3.6%, much weaker than the -0.8% expected and the largest decline since May 2009. September data was revised down sharply as well;

UK November services PMI fell to 50.2 (the lowest since December 2010), from 50.6 in October and below the forecast of 51.0. New orders declined materially to 49.6, from 52.9, a 2 years low. The composite manufacturing and services PMI rose to 50.2, from 49.6 in October. The services data, whilst marginally in expansion territory, is ominous for Q4 UK GDP, given that services represents over 70% the UK economy;

The UK Chancellor admitted that the UK will miss its target to have debt to income declining by 2015/16. In his Autumn Statement, the Chancellor stated that austerity measures will need to be extended to 2018. He announced a £5bn capex programme, combined with government guarantees for another £40bn of infrastructure projects. GDP was reduced to -0.1% for the current year ending 5th April 2013 from +0.8% previously, with a rise to +1.2% next year, lower than the the previous forecast of +2.0% and increasing further to 2.0% in 2014/15.

Government borrowings is expected to be 6.9% of GDP this fiscal year (to 5th April 2013) and 6.1% in 2013/14, declining to 5.2% in 2014/15.

The UK is to cut corporation tax by 1.0% from April2014.

The inflation forecasts ave been raised to +2.5% for next year and +2.2% in 2014.

The weaker growth, though worse fiscal outlook threatens the UK’s AAA rating – it is likely that it will be cut next year.

Sterling was relatively unchanged on the news;

US Q3 non-farm productivity came in at 2.9%, as opposed to 2.8% expected and 1.9% previously. Labour costs were 1.9% lower, much more than the 1.0% expected.

ADP employment change cane in at +118k in November, slightly below the 125k expected and the previous 158k;


Asian markets closed higher with China and Hong Kong up over 2.0%. It looks as if there is renewed interest in China, which suggests that the market will rise further. Miners benefited from the Chinese news, though the A$ was pretty flat.

European markets are higher, with US futures indicating a slightly higher open – uncertainty over the fiscal cliff dominates. Spot gold is trading at US$1704, with January Brent at US$110.26.

The Euro is weaker and is trading below US$1.3074, having been above US$1.31 earlier. Looks as if its time to start building up a short. The uncertainty over Spain will not help sentiment.

The Yen, having declined to near 82.35 against the US$, is now trading at 82.09 – I remain bearish.

Essentially positive on markets and will be buying on dips.



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