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Kiron Sarkar
September 08, 2011
Hi,
Australian unemployment rose for the 2nd consecutive month in August.
Unemployment rose by 9.7k, with the unemployment rate up to +5.3%, the
highest since October 2010, from +5.1% in July.It is likely that the
RBA will reduce interest rates - a cut of 75bps is predicted by the
futures market, from the current rate of +4.75%. The A$ declined on
the news;
The Bank of Korea kept interest rates on hold. Cant see anyone raising
rates in the current environment;
The Indonesian Central bank also kept interest rates on hold;
Japanese machinery orders declined by the most in 10 months in July -
they were down -8.2% from June and much worse than the expected
decline of -4.2%. Bad sign, as it generally forecasts capex some 3 to
6 month ahead - suggests that the post earthquake rebound is staling.
Last week, the Government reported that capex had declined by -7.98%
in the 2nd Q, well below the +1.0% forecast. The Yen was trading at a
post WW11 high last week. I wonder how long before the BOJ announces
similar actions to the SNB.
Japanese July current account surplus shrank for the 5th consecutive
month - to Yen 990.2bn in July (-42% from a year ago and worse than
forecasts of a decline of 31.3%)
Fitch warned about a possible downgrade;
Fitch has warned that it may downgrade China in the next 2 years. They
cite a likely material deterioration in bank asset quality. Whoops;
Bloomberg reports that Chinese officials have advised the EU Chamber
of Commerce that the Yuan will be convertible by 2015. I'll believe it
when I see it;
Indian food inflation rose to 9.55% YoY in the week to 27th August -
just cant bring it down.
The ECB raised interest rates in 2008 - they were wrong then. This
year they have raised interest rates by 50 bps - they are wrong again.
Today, the ECB will announce its decision. Trichet's previous remarks
about increasing inflation will be ignored I suspect. He will, at
worst, lay the foundations for a cut in rates, most likely this year.
Trichet/the ECB have contributed to the European banking crisis.
Personally, it seems strange to me that people like Trichet/the ECB
can be wrong on so many occasions and yet are given an easy ride - I
suspect that will change, given the number of mistakes they have made.
As for today, no rate cuts are expected (even though they are much
needed, as higher interest rates hurt the highly indebted peripherals
the most), though Trichet did suggest a softening of his hawkish
inflation comments. He may announce additional liquidity measures for
the banks;
Spanish July industrial output declined by -2.8% YoY, lower than
forecasts of -1.6%. Cant see how Spain picks up. Amazingly, the market
still has not focused on Spain as much as it should. Personally,
Spanish bond yields should be higher than their Italian equivalents in
my humble opinion;
President Berlusconi's revised E54bn austerity plan (unlikely to be
enough) was approved by the Italian Senate yesterday. It now faces a
vote in the Chamber of Deputies - expected on Friday this week.
Italian 10 year yields declined to 5.27%;
The Finns continue to demand collateral if they are to contribute to
Greece's 2nd bail out. The Greeks have finally realised that other
Euro Zone members are getting fed up of them. They have promised to
meet their commitments - have we heard that before - Yes. Will they
deliver - NO. The reality is that Greece will not deliver and will
default, most likely this year. However, they may get the next tranche
of bail out funds as there is no plan in place to avoid contagion, but
next time.....;
The Slovaks have announced that they will not discuss amendments to
the EFSF in Parliament until December, suggesting that it will be
Jan/Feb before agreement can be reached. Basically, the ECB remains
the only player who can act in terms of buying PIIGS bonds;
The Dutch have called for an Euro Zone budget tsar. Clearly the Euro
Zone is heading towards fiscal union (the only credible option),
though, as usual, it will be a long, meandering and bumpy road;
The German July trade surplus declined to E10.1bn, versus E11.2 in
June and lower than the E11.2bn forecast. Exports were down by -1.8%
MoM and imports -0.3%. The July current account surplus was E7.5bn, as
opposed to a downwardly revised surplus of E11.5bn in June (previously
E11.9bn);
Interestingly, the August Bank of France business sentiment survey
came in at 98, higher than the forecast of 97. However, it reduced 3rd
Q GDP to +0.1%, from +0.2% previously.
French July trade deficit was -E6.5bn, weaker than the forecast of -E5.9bn;
European banks continue to have funding problems. US$ funding, in
particular, is a major problem as US money market funds are reducing
their short term funding. Euribor-OIS spreads are rising. The
situation is getting critical;
The BoE is to announce its interest rate decision today. More QE, well
analysts suggest not this time. However, I firmly believe that the
£200bn of existing QE will be increased by £50bn shortly, if not this
month, certainly this year;
Gloomy views from the FED's Beige Book. 7 out of 12 regions were
contracting and even the other 5 were growing only slowly. Should
provide more ammunition for the FED doves to introduce Operation
Twist/QE3;
President Obama's US$300bn jobs speech today - may sound great, but
will not be supported by the Republicans - a down and out economy
helps Republicans in next years Presidential election - seems like
their game plan, though a dangerous tactic, if true;
Summary
US markets closed at their highs yesterday. Asian markets closed
mainly higher, ex Hong Kong and China. European markets are up at
present - waiting for (a more dovish) the ECB. MS talks about
coordinated Central Bank action - possibly, but the ECB is a law unto
itself. Brent is slightly lower - currently trading at US$115.30. Gold
is recovering from yesterdays sharp sell off - currently US$1836. The
Euro is picking up, supported by Asian (mainly Chinese buying) and now
the SNB (buying German and French bonds).
Best
Kiron
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