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Kiron Sarkar
October 14, 2011
Hi there,
Chinese September CPI came in at +6.1%, in line with expectations and
lower than the +6.2% YoY in August, though higher than the +4.0%
target. Chinese producer prices declined to +6.5% in September YoY,
well below forecasts and August's +7.3% increase. Food inflation
remains at an elevated +13.4% YoY, though recent lower food prices and
base effects should reduce food inflation significantly next year.
I would expect the Chinese authorities to start to ease on their tight
monetary policy which is having a much larger negative impact that I
suspect the Chinese imagined - possibly even as early as this year,
though certainly next, though I accept that inflation at 6.1% at this
time of the year limits the flexibility of the Chinese authorities.
Any easing will be seen as positive for the miners and related plays
(A$), but longer term, they remain a short in my humble view. The Yuan
dipped in retaliation to the US anti Chinese currency measures, though
is still expected to rise by some +5.0% this year against the US$.
Personally, I remain of the view that the scope for a major
revaluation of the Yuan is limited;
Even Singapore is getting cautious. It cut its growth forecasts to
5.0% this year, from a 5.0% - 6.0% range earlier.The MAS, whilst
maintaining its S$ appreciation policy, will do so at a slower pace
from now on. Core inflation forecasts for 2012 are expected to be
slightly lower than the 2.1% expected this year - down to between 1.5%
- 2.0%;
Expect more M&A from State controlled Indian companies in the
commodity sector, as the Government is to allow companies to bid for
foreign assets without first consulting them;
The Indian Central Banker continues to warn about inflation (it came
in at 9.72% in September YoY, slightly lower than the 9.78% in August,
though slightly below forecasts of 9.75%), suggesting that rates will
either be kept on hold or may even be raised (likely at the next
meeting on October 25th). This policy is in sharp contrast to other S
E.Asian countries, who are all loosening monetary policy as quickly as
they can;
Slovakia approved the amendments to the Euro Zone's temporary bail out
fund, the EFSF, yesterday. All 17 Euro Zone countries have now
approved the necessary legislation. However, the E440bn fund is too
small to provide sufficient finance for the PIIGS and, in addition,
recapitalise European banks and will require either leverage
(unlikely), or be used as an insurance scheme (looks like the plan the
Euro Zone is considering);
Mr Berlusconi faces his 51st vote of no confidence today. He is
expected to win by a slim majority, but the writing is on the wall.
Italian General elections are expected in early 2012, though it is
unclear as to who will lead Italy in the future;
The FT reports that Spain will miss its 2011 budget deficit target of
6.0% - absolutely predictable. A near recession, overspending by the
17 autonomous regions and lack of follow through by the current
administration which is expected to lose the 20th November elections
are cited as the main reasons. The initial target were completely
unrealistic, as is the current regimes 2012 target of reducing the
deficit to 4.4%. Spanish bond yields are going to rise, especially as
the Spanish banks are grossly under capitalised and have not accounted
for potentially significant losses.
S&P downgraded Spain 1 notch, to AA- and placed the country on
negative outlook - Fitch did the same earlier this month. Spain is to
auction bonds today - will be interesting to analyse the results. The
downgrade was expected;
The Portuguese PM announced that the country will have to make even
greater cuts next year to meet its targets. The Portuguese economy is
expected to contract by -2.2% this year and by slightly more next;
Belgium may have a Government soon - its only taken them 488 days so
far to form one;
EM's are concerned that the crisis in Europe will impact upon them.
They are in discussions with the IMF to provide funding, via the IMF.
An increased role by the IMF will be positive as the EU/ECB are
incapable of sorting out the mess. In any event, it is clear that the
IMF is seeking to increase its lending capacity significantly;
The Brazilian economy (economic activity, a proxy for GDP) contracted
by -0.53% in August MoM, more than the -0.4% expected. Analysts expect
that the Central Bank will cut interest rates by 0.5% to 11.5% at its
next meeting;
Fitch has cut the ratings of a number of banks (UBS, RBS, Lloyds) and,
in addition, has placed the debt of a large (over a dozen) number of
global banks on credit watch negative;
Summary
Asian markets closed lower (Korean/Indian markets are up). European
markets are open flat.
The Euro is flat against the US$. Gold is modestly higher.
The G20 Finance Ministers start their meetings today, followed by the
EU heads of State meeting next week. The crucial date is the (early
November) G20 Heads of State meeting. Merkozy have promised a solution
to the Euro Zone crisis before that.
Great results by Google last night - beat across the board.
I expect markets to pick up somewhat today.
Best
Kiron
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