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Kiron Sarkar
September 20, 2011
Hi there,
There are further reports of monetary tightening in China. Property
prices continue to rise.
There are yet more reports from bankers relating to (rising) capital
flight from China. Not a good sign;
The Chinese Commerce Ministry reports that Beijing is disappointed that
the EU has not recognised China as a "market economy". There are reports
that the Bank of China has withdrawn some FX swap lines with French
banks in a fit of peek. Legislation relating to allegations of currency
manipulation, which will get cross party support, is going to be put to
Congress. President Obama will veto, no doubt;
Minutes released by the Australian Central Bank, the RBA contained no
real surprises. The bank is concerned about the global economy and local
inflation;
Discussions between the Troika and the Greeks are fraught apparently.
It seems as if any decision will take yet more time. A further telephone
conversation is to take place at 5.00pm GMT today. The Greek Finance
Minister is promising everything as usual - its not promises mate, you
have to do it;
S&P has downgraded Italy 1 notch from A+ to A, with a negative outlook,
suggesting further possible downgrades. S&P is now 3 notches below
Moody's, which suggests that Moody's will also downgrade Italy in the
next month. S&P cited a weakening economy and a "fragile coalition
government" which was unable to "respond decisively". S&P raised its
forecast of debt to GDP to a peak of 122.4% in 2012 and, in addition,
lowered growth forecasts to +0.7% for each year till 2014, well down
from the +1.3% forecast in May this year. In a negative scenario, Italy
would be in recession next year with debt to GDP peaking at 123.9%.
Finally, Moody's stated that there was a 1in 3 chance of Italy would be
downgraded further by 2013. Italian 10- year bond yields are up 14bps to
5.72%.
European futures are not down by as much as I would have thought -
around -0.6% it is clear that downgrades are the norm these days and an
Italian downgrade was expected. However, the Euro is down -0.5% against
the US$;
Siemens has withdrawn E0.5bn from an (unnamed, but not BNP) French bank
and parked it at the ECB, reports the FT - getting hot out there;
German August PPI came in at -0.3% MoM (+0.7% in July) or +5.5% YoY
(+5.8% in July), lower than forecasts of fat and +5.8% respectively;
Mrs Merkel lost the election in Berlin. Her coalition partner lost all
their representation - getting to be a habit;
The Swiss Government forecasts GDP growth of +1.9% in 2011, lower than
the previous +2.1% forecast. 2012 growth had been downgraded to +0.9%,
much lower than the +1.5% previous forecast. The strong Swissy has had a
significant negative impact on their economy;
President Obama revealed his tax and spend proposals. The measures have
no chance of succeeding, given Republican opposition. However, it
clearly is a political move in anticipation of next years Presidential
elections. Need to check out polling results;
The Brazilian Finance Minister Mr Mantega wants the WTO to be given
powers to act against countries that devalue their currencies to help
their export position. The US and China opposes this move and the
chances of this proposal succeeding are zero.
The Brazilian Real has taken a beating in September - its down 11% on
the month against the US$;
Summary
Asian markets were mixed (India and China are up), though most of the
rest closed lower. European markets have ignored the Italian downgrade
- the FTSE is flat at present and looking as if it will continue to
rise. Indeed, Europe is up across the board.
Brent is trading at US$109, with spot Gold at US$1787.
Bond yields are lower for the "safe" countries.
Best
Kiron
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