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Kiron Sarkar
October 13, 2011
Hi there,
Unemployment declined by 20.4k in Australia in September, the first
time unemployment has declined since March this year. The unemployment
rate fell to 5.2%, from 5.3% in August. The mining sector is still
increasing employment, though the East of the country shows no
employment growth.
Australian exports surged to A$28.4bn (increased coal shipments
mainly) and the trade surplus rose to A$3.1bn.
Home loan approvals rose for the 5th month.
The better numbers recently may force the RBA to hold off expected
cuts in interest rates;
BOJ minutes reveal that the Japanese Central Bank considered further
stimulus measures in light of the slowing global economy;
As expected, the Bank of Korea kept interest rates on hold for the 4th
consecutive month - rates are expected to be kept on hold and/or cut.
They stated "that downside risks to growth had increased". Inflation
declined to +4.3% YoY in September, from +5.3% in August.
The US signed a free trade agreement with Korea yesterday;
Chinese exports rose by a less than forecast +17.1% in September YoY -
forecast was +20.5% YoY and as compared with +24.5% in August YoY. The
main reason was a slump in exports to Europe which increased by +9.8%
from +22.0%. Imports rose by 20.9%, somewhat less than the +24.2%
forecast. The trade surplus came in at a lower US$14.51bn.
The impact of the recent monetary tightening is clearly biting, though
analysts do not expect a change in policy (if indeed the Chinese do
change - likely in my view) until early December, when the Chinese
meet to discuss the economy.
Chinese authorities announced measures to provide financing and tax
breaks to SME's, who have been particularly badly affected by the
credit squeeze.
Whilst a number of people suggest that the Yuan is undervalued, I have
been reading a number of reports recently which suggest otherwise -
interesting;
Slovakia is expected to pass legislation approving the amendments to
the EFSF tomorrow. As a result, all 17 Euro Zone countries will have
approved the changes, if the Slovak Parliament votes as expected;
Italy will vote on its 2010 budget today, having failed to get is
passed earlier. Belusconi is seeking yet another confidence vote. The
political uncertainty has pushed up Italian 10 year yields above 5.8%
earlier today. However, a bond auction went relatively well - the 10
year was sold at 5.77%;
German EU harmonised inflation rose to +2.9% in September, from +2.5%
in August. Energy costs were to blame mainly. However, inflation is
expected to peak this month and contract sharply from next year.
German GDP is expected to contract sharply next year - to just +0.8%,
against a forecast of +2.0% in April, reports leading German
Institutes. 2011 GDP is expected to come in at +2.9%. However,
unemployment is expected to decline to 6.7% next year, from 7.0% this
year and Inflation is forecast to decline to +1.8% in 2012, from +2.3%
this year - lower than previously expected. If right, should enable
the ECB to cut interest rates further;
The Euro declined following the release of the ECB's October monthly
report - nothing really special in it though - just the same old clap
trap. Essentially, CPI will remain above 2.0% for a few months and
then decline. The outlook is subject to high uncertainty. Finally they
warn agsinst PSI - well its going to happen;
The UK's visible trade deficit was £7.768bn in August, as opposed to
£8.154bn, better than the expected deficit of £8.8bn. Exports rose,
whilst imports fell. Including invisibles, the trade deficit shrank to
£1.9bn, from £2.3bn in July. However Sterling was unmoved on the news;
The US Congress approved free trade agreements with South Korea,
Colombia and Panama yesterday, after years of deadlock;
FED minutes released yesterday reveal that they considered a new round
of QE at their September meeting, suggesting that QE3 remains a real
possibility. Whilst 3 members opposed "Operation Twist", 2 others
wanted the FED to take more action to stimulate the US economy.
Interestingly, the minutes suggest that the FED favoured taking more
steps to improve transparency, "including providing more information
about the committee's longer-term policy objectives and about the
factors that influence the committee's policy decisions" ie setting an
explicit inflation objective. The minutes also suggest that the FEED
may consider keeping interest rates low until unemployment improved to
a certain predetermined level and, in addition, providing more
guidance on how it expects to change interest rates in future,
together with improving its communication tools. The employment target
was controversial. The FED also considered cutting interest rates on
deposits placed with it by banks. Finally, the FED cut its 2nd half
2011 economic forecasts, once again;
The US August trade deficit was little unchanged at a 4 month low of
US$45.6bn and in line with estimates.
Initial Jobless claims declined by 1k to 404k last week;
Summary
The FT and the WSJ reports that:
the EFSF may provide insurance against losses on bonds, thereby
effectively increasing its E440bn size;
the EU may impose a 9.0% - 10% core Tier 1 ratio on banks (the EBA is
suggesting that banks hold capital equivalent of between 9.0% - 10% of
their risk weighted assets on a Basel 2.5basis), after accounting for
losses, including marking to market their holdings of Sovereign bonds.
The FT suggests that European Banks will require to raise E200bn.
The recapitalisation is to be achieved within 6 to 9 months, or they
will have to be compulsorily recapitalised by either the relevant
Government in the 1st instance, if possible, or the EFSF, if the
relevant Governments cant. France wants the EFSF to be leveraged and
be able to provide the necessary financing to recapitalise the banks -
they are worried about their AAA credit rating. Banks (particularly
Deutsche) are opposed to these proposals and state that they will
reduce their balance sheets and/or cut lending. Standard threat. Banks
that receive Government/EFSF funds will be prohibited to pay
divs/bonuses - Oops.
Credit Suisse reports that approx 66 of European banks would fail any
revised Stress Tests. ;
the size of the haircut on Greek bonds will be above the initial 21%
agreed - nearer 50% - still not enough.
European markets are currently off about 1.0%. US markets have opened
some 0.4% - 0.7% lower.
JPM results beat expectations, though 30% of that was unrealised gain
on lower JPM bond prices, which, in accounting terms, imply a gain if
bought back. Investment banking profits declined.
Best
Kiron
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