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Kiron Sarkar
September 20, 2011
Hi there,
Interesting move in Latvia. A party controlled by Oligarchs (accused of
corruption) lost more than half the seats that they had held previously
in the recent election. The Harmony party, polled the most seats - it
has support from mainly ethnic Russians, who represent 40% of the 2.2mn
population;
A leading Greek newspaper suggests that the Greek PM will call a
referendum as to whether Greece should remain in the Euro. The Greeks
have denied the report, but believe in official Greek reports at your
peril. Personally, it sounds like a great idea. It will focus the public
mind on what they want to do and provide some policy certainty/impetus.
If a referendum is called, one would hope they say "get out", but I fear
they will vote the opposite way ie to stay in.
Reuters reports that representatives of the Troika (IMF, ECB, EU) are
heading back to Greece. Looks as if a deal will be done. However, I
expect further EU "noise" on the EFSF legislation/Finnish collateral
issues;
Spain auctioned 12/18 month T bills today. The E3.587bn 12 month was
priced at 3.591%, with a bid to cover ratio of 2.78 times, as opposed to
3.335% previously (bid to cover 2.14 times) and the 18 month bills were
priced at 3.807% versus 3.592%. The bid to cover ratio was 2.74 times as
compared with 3.23 previously - not bad in the circumstances;
Strikes in Spain are starting, in anticipation of the prospective change
in the Government following the November general election - its the
teachers this time. The Socialists are expected to be kicked out and the
right wing party, the Peoples Party, expected to take over.
Polls suggest that they will attract almost 45% of voters, with the
Socialists around 30%.The Peoples party has announced that it intends to
impose further austerity measures. Still believe that Spain will have
serious problems, though any real news will probably start coming out a
few months after the expected win of the Peoples Party, when all the
fiddles etc, employed by the current administration, are brought to
light;
The German September ZEW investor confidence index came in at -43.3,
well below the August reading of -37.6, but not as bad as the forecast
of -45.0. However, the index is at its lowest since December 2008. The
current conditions component was down to 43.6 (the lowest since July
last year) from 53.5 in August, though slightly better than the forecast
of 40.0.
Interestingly, German politicians and the Bundesbank are repeating that
economic growth will be better than private sector forecasts, citing
stronger consumer demand. You have to take them seriously, as they are
not prone to delusions, though I must say, I'm not sure how that can be
the case. The EU forecast that GDP would be +0.2% QoQ in the 3rd Q and
just +0.1% in the 4th Q, a few days ago. Maybe we will get some good
news. Consumption in Germany has not been particularly strong in the
past, though recent data suggests that the Germans are spending more
Fitch reaffirmed Germany's AAA rating, with a stable outlook. Just wait
till they get to bail out the Greeks et all ;
Bloomberg reports that Siemens withdrew the E0.5bn from the French bank
Soc Gen and deposited it with the ECB. Soc Gen have been in the wars
recently. In total Siemens is reported to have deposited some E4bn -
E6bn at the ECB. Last year, Siemens created its own bank, which allows
it to access ECB funding and deposit money with the ECB. I expect a
number of other companies will follow Siemens lead. The resultant loss
of deposits from existing banks will hurt. In addition, these new banks
will have none of the legacy problems and could well pose serious
competitors to existing banks, particularly on corporate lending. Those
who are plugging banks at present are loopy, in my humble view. They had
better get their financial controls in place though;
US August housing starts declined by -5.0% to a 3 month low of 571k, on
an annualised basis and lower than forecasts of 590k. Hurricane Irene
could have impacted housing starts. July was revised down to 601k, from
604k previously. Permits rose by +3.2% to an annual pace of 620k in
August. The West showed the largest increases in building permits;
More speculation re "Operation Twist" following the FED's 2 day meeting
starting today. Goldman's et all also suggest that the FED may reduce
the interest paid on deposits with the FED. Personally, I feel that
Operation Twist has been priced in - not sure whether the markets will
react if just that is announced - really need more for a positive
reaction;
Summary
European markets continue to rise - clearly in anticipation of the FED
announcement tomorrow - it had better be good news. The Euro reversed
and is now up +0.2% against the US$, in spite of the S&P downgrade of
Italy. US markets opened higher and have just continued to rise. The
market is now beginning to believe that an imminent Greek default will
be averted - it's my view, but I'm not sure whether it will last for
long. In addition, expectations for tomorrows FED announcement are sky
high, which worries me I must admit.
By flattening the yield curve due to FED expected to implement Operation
Twist, the financials will take another hit in terms of profits - yet
another reason to avoid them. They picked up somewhat today on hope that
Greece will not default. All short term stuff.
Brent rose to US$110.73, still do not understand why it is so strong.
Gold also (surprisingly) rose - its currently trading around US$1809.
All waiting for the FED and the Troika's view on Greece.
Best
Kiron
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