Chinese to restrict/limit its shadow banking market?

Australia’s November trade deficit rose to A$2.64bn, as compared with A$2.3bn expected and an upwardly revised A$2.44bn in October. The deficit was the widest since March 2008. Exports rose by 1.0% to A$24.7bn, whilst imports rose by 2.0% to A$27.3bn;

Japanese press report that the Government will announce a stimulus plan of Y12tr (US$136bn), with the fiscal year 2013 budget to be announced by end January. The Japanese Finance Minister, Taro Aso reports that the Y44tr cap on bond issuance this year does not need to be adhered to, with expectations that it will top Y50tr.

Mr Aso added today that Japan would buy ESM bonds, using its forex reserves. The size of such purchases has not been announced. The announcement has weakened the Yen against the Euro marginally. However, as the Japanese are using their forex reserves, I presume they will have to sell other currencies, to invest in ESM bonds, as Japan is facing a current account deficit;

It looks as if the Japanese government and the BoJ are trying to agree on an employment goal (a la FED) as part of the BoJ’s mandate;

The FT suggests that Chinese authorities may limit financing by the shadow banking market. If they are right, watch out. It is estimated that the sector has been responsible for close to half of all financing (possibly more) in recent years, though accurate numbers are hard to come by. I will certainly watch this one carefully;

Opinion polls show that Mr Mario Monti is trailing mainstream parties, while Berlusconi has struck an election deal with Northern League ahead of the impending elections in Italy in February.

The Italian November unemployment rate came in at 11.1% M/M, slightly less than the 11.2% expected and unchanged from October;

Ms. Lagarde has stated that restructuring Portugal’s debt is “out of the question” and that Portugal’s bailout programme is progressing well. Ms Lagarde may say that, but the reality is very different, in my humble view;

German seasonally adjusted exports declined by -3.4% in November M/M, worse than the -0.5% decline forecast and as opposed to an increase of +0.2% in October. The decline was the steepest in more than 1 year.

The trade surplus rose to E17bn, up from E15.7bn in October, with the current a/c surplus coming in at E15.3bn, as opposed to E13.2bn in October. Exports to the EZ weakened significantly.

German November factory orders were -1.8% lower M/M, worse than the -1.4% expected;

The ECB has found issue with collateral of Bank of France due to insufficient risk valuation discounts made on the collateral and hence Bank of France has been granted too much credit;

The French November trade deficit declined to -E4.3bn, from -E4.7bn in October and -E4.8bn expected ;

EZ PPI (Nov) M/M -0.3% vs Exp. 0.0% (Prev. 0.1%), Eurozone PPI (Nov) Y/Y +2.1% vs Exp. +2.4% (Prev. +2.6%).

EZ November retail sales were +0.1% higher M/M (-2.6% Y/Y), though weaker than the +0.3% expected and as compared with a revised -0.7% in October.

EZ November unemployment rose marginally to 11.8% in November, from 11.7% in October and in line with expectations;

Eurozone Sentix indicator came in at -7 for January, measurably better than the -16.8 in December and analysts expectations of -15.The index is at the highest in 1 ½ years;

BoA has agreed to pay Fannie Mae US$11.6bn in settlement of a dispute over the sale of mortgage loans to Fannie. In a separate agreement, 10 mortgage banks agreed to pay US$8.5bn in settlement of charges that the banks abused the home foreclosure process;

Bloomberg reports that apartment vacancies have fallen to a 11 year low. The vacancy rate nationally has declined to just 4.5%, from 4.7% in Q3 and 5.2% a year ago. Vacancies in New York are just 2.1%, though unchanged Y/Y and the lowest nationally;

Another report in Bloomberg which refers to Moody’s expectation that state and local governments will be in hiring mode this year, as their finances have improved to the best since the start of the financial crisis. Moody’s expect some 220k jobs will be created by state and local governments this year. I remain positive on employment in the US;

Basel III rules have been relaxed, which prompted a rally in the financial sector yesterday. Banks will now have until 2019 to meet their liquidity coverage ratios. The deal also expands the number of securities banks can use to meet their liquidity requirements. The issue of solvency remains a pressing issue;


Asian markets closed weaker, with European markets up, having opened weaker. US futures suggest that markets will open lower.

The Euro having started stronger is selling off and is, currently trading at US$1.3095.

Gold is marginally higher at US$1652, with February Brent higher at US$112.22.

I see no reason to chase these markets, as I believe that the negotiations between the Republicans and the Democrats over the spending cuts/debt ceiling will be far more contentious, than was the case over the fiscal cliff. The uncertainty caused will be market negative. Having sold out of the mining sector, I will retain my other positions for the moment, though will reduce, if markets rise in any meaningful/semi meaningful way.

Kiron Sarkar

8th January 2013

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