Better US housing data

Australian employment declined by -5.5k in December, much worse than the +17k rise in November and a +4k rise expected. The unemployment rate ticked up by +0.1% to 5.4%. The data is yet another indicator that the RBA will cut rates at its next meeting;

The Japanese deputy finance minister will attend the BoJ meeting next week. He added that the current administration will not abide by the cap on debt sales imposed by the previous administration – no great surprise.

The Japanese Economy Minister was clearly talked to – he stated earlier today that the Yen was still in the process of correcting from excessively strong levels. The statements, which quite frankly were a repetition of comments yesterday, resulted in a material weakening of the yen against the US$ and the Euro, in particular. He stated that “the media didn’t report my full remarks and that caused a reaction in the markets”.

The opposition has stated that they may not support the current administration’s candidates for the BoJ board, in particular, the governor. The Japanese PM stated that he would confer with the opposition as to the candidate;

The Indian government has allowed for increases in diesel prices, thereby cutting subsidies. The threat of a credit downgrade still looms. The finance minister wants to cut the budget deficit to just -5.3% of GDP this fiscal year – a big ask;

The EU, Mr Ollie Rehn, the EU Economic and Monetary Affairs Commissioner Mr Rehn, has advised France that it needs to do more to implement structural reforms. In addition, the EU warns France over its serious imbalances ie budget, trade and current account deficits Competitiveness needs to be restored, together with dealing with persistently high unemployment. Clearly right, but France is France. The situation will get worse;

US industrial production rose by +0.3% in December. Manufacturing output rose by +0.8%, as compared with an upwardly revised +1.3% in November. Capacity utilisation was up +0.1%, slightly below long term averages. The data suggests that capex spending will increase in coming months (once the spending cuts/debt ceiling debate ends – hopefully sensibly). Furthermore, the US housing market recovery continues, though homebuilder sentiment declined marginally to 47, from the 48 expected;

The FED Beige book reported that all 12 districts witnessed “modest” or “moderate” growth. Retailers saw “some growth”in consumer spending, with inflation largely unchanged. Businesses dependent on Europe and/or the defense industry were cautious. All districts that reported on home prices, confirmed that prices had increased;

US housing starts rose by +12.1% in December to an annual rate of 954 k, higher than the rise to an annual rate of 890k expected and +28% higher Y/Y. Construction of homes rose to 780k homes last year, up from 608k in 2011. I continue to believe that housing will improve, with access to credit becoming somewhat easier and with buyers eager to buy ahead of potential increases in mortgage rates. Home prices are also rising. Building permits rose to 903k, a +0.3% increase above the 900k annual pace in November;

Jobless claims declined by -37k to 355k in the week to 12th January, the lowest amount since January 2008 and below forecasts of 369k. The less volatile 4 week moving average declined to359k from 366k previously;

The Brazilian Central Bank kept interest rates on hold at 7.25%, though acknowledged that inflation remained a problem, whilst growth was disappointing. In addition, the Central Bank indicated that monetary policy would remain unchanged for the foreseeable future. Remain of the view that Brazil will experience higher inflation with low growth;


Japanese stocks reversed earlier losses and closed marginally higher as the Yen weakened on remarks from the Economy Minister that his previous comments were misinterpreted. Other Asian markets were mixed, though the Indian Sensex closed higher on the news of lower diesel subsidies – quite frankly not going to make a tremendous reduction in the budget deficit.

European markets are higher, in particular following the better US data with US markets also up.

A lot of Chinese economic data out tomorrow. On balance should be positive, with the caveat that it is Chinese data !!!.

The Euro is trading at US$1.3339 with the Yen at Yen 88.29 against the US$, up over 100 bps from its lows earlier today.

Spot gold is trading at US$1673, off somewhat following the better US data, with March Brent at US$110.62, up following the US data.

Kiron Sarkar

17th January 2013

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