Corruption scandal allegedly involves Spanish PM

Japanese industrial output rose by +2.5% in December M/M (+1.4% in November), though lower than the +4.1% gain expected. Production declined by -7.8% Y/Y. The data suggests that the most recent GDP forecast of +2.5% for the current year, issued by the Japanese government is (hopelessly?) optimistic;

Some Chinese press reports suggest that a trial property tax scheme will include Beijing. That could be bad news for the market, which has rebounded in large part due to the improvement of the housing market. The outgoing Premier warns about inflation – yep, it looks as if inflation has bottomed and will start to rise from now on. Higher oil and food prices will not help;

The Russian economy grew by +3.4% last year, slower than the +4.3% in 2011 and the forecast of +3.6%. GDP is expected to grow by +3.0% this year, with a material acceleration in H2;

Spanish press claim that Mr Rajoy, the Spanish PM, received secret cash payments, from construction companies, since 1997. Politicians from Mr Rajoy’s Popular Party (PP) have been accused of taking cash payments. This scandal has legs and is a major threat to the current administration. A recent poll reveals that 96% of Spaniards believe that their politicians are corrupt. Spanish bond yield rose;

Unemployment in Germany declined unexpectedly in December by 16k (seasonally adjusted) to 2.92 mn, as opposed to the increase in unemployment of 8k expected. The adjusted jobless rate declined to 6.8%, a 2 decade low – in the height of a financial crisis in the EZ – that’s Germany for you. A poll of small and medium sized businesses expect to add to workers this year. The Bundesbank reports that the German economy seems to have rebounded from the slowdown in Q4, expected to be around -0.5% of GDP Q/Q. My forecast of German GDP of over +1.0% (indeed +1.25%) for this year is looking better – phew. Whatever, the Bundesbank/Government forecast of just +0.4% for this year will have to be revised higher;

Surprisingly, German December retail sales came in at -1.7% M/M or -4.7% Y/Y, much weaker than the -0.1% M/M and -1.6% Y/Y expected. Can’t explain it given the recent better data;

German preliminary January CPI came in at -0.5% M/M, or -1.7% Y/Y, below forecasts of -0.4% M/M and +2.0% Y/Y. Further declines will provide scope for the ECB to cut interest rates by 25 bps in coming months.

CPI and or PPI in Spain, Italy and France declined – makes me feel that an ECB rate cut will be on the cards within the next 2 to 3 months – unlikely at the next ECB meeting though;

French December consumer spending came in unchanged, lower than the +0.2% forecast – yet more bad news;

UK January consumer sentiment, whilst still negative at -26, rose from – 29 in December, better than the -28 forecast, according to Gfk. The future expectations component rose to -25, from -31 in December.

Mr Bernanke suggested that the FED is not close to easing on its US$85bn per month bond buying programme. The FED added, that whilst yesterday’s decline in US Q4 GDP of -0.1%, was due to transitory factors, the economy faces “downside risks”. The FED minutes released in respect of December’s meeting suggests that there were roughly an equal number of FED members who wanted the current bond purchase programme to end in mid this year, as opposed to those who who want the programme to continue till a later date;

US initial jobless claims came in at 168k, higher than the 350k expected and the 330k previously.

US December personal income rose by +2.6%, much higher than the +0.8% expected – payments being paid early to avoid higher tax rates in January, basically. However, November’s personal incomes were revised higher to +1.0%, from +0.6% previously.

US personal spending rose by +0.2% in December M/M, lower than the +0.3% expected.

US December PCE deflator came in at zero as expected and as opposed to -0.2% in November;


Having been some -1.0% lower, the Nikkei closed 0.2% higher today and at the highest level since April 2010. Elsewhere Asian stocks were flat to lower, reflecting the much worse than expected US GDP data and the lower Japanese industrial production figures. European markets are over -0.5% lower, with the Spanish Ibex down -2.3%, following the news that the Spanish PM, Mr Rajoy accepted secret cash payments. News just gets worse and worse from Spain. The Monte dei Paschi scandal in Italy continues, adding to political uncertainty ahead of the impending elections, with Berlusconi’s party gaining support.

US futures suggest that the market will open marginally lower – yesterday performance was not bad, given the extremely poor (though very likely rogue) GDP Q4 data.

The Euro, well its retreated a bit on a risk off move – currently US$1.3551. The Yen has strengthened somewhat – currently trading just below 91 against the US$ – still expect it to weaken.

Spot gold is trading around US$1671, with March Brent at US$114.79, still too high.

Remain cautious and will look to reduce my equity holdings further. Investors will now be focusing on the impact of a possible automatic sequester.

Kiron Sarkar
31st January 2013

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