Archive forFebruary, 2013

After Winter must come Spring

Suddenly, the Italian election and the implications for the Eurozone are very much yesterday’s news. The prospect of $85 billion worth of automatic cuts under ‘Sequestration’ from tomorrow don’t seem to be an issue any more. Instead, the Federal Reserve is going to keep supporting Wall Street through continued easing and positive economic data, such as for yesterday’s housing and new orders for durable goods (excluding transportation,) keep flowing. It feels as if Spring is really here after a long hard Winter!

Japan’s industrial output rises in January

Japan’s industrial production rose 1% m-o-m in January following a 2.4% increase in December, the Trade Ministry said today. Manufacturers surveyed by the Ministry of Economy forecast output to surge 5.3% in February and 0.3% in March. Separate data showed manufacturing activity in February shrank at its slowest pace since June, with the Markit/JMMA Japan PMI up to 48.5 from 47.7 in January.

Let them eat gold

Italy, the country that gave the world the 15th Century politician Machiavelli, could use some of his insights about the importance of political stability today. As the hours since the election result pass, the complexity of the challenges facing the Italians seems to grow in scale. While Pier Luigi Bersani, whose Democratic Party won the largest share of votes in both the Lower House and the Senate, feels he has a moral claim to be leader, the reality is that he needs to forge a coalition in the Upper House to be able to govern. So far, media reports suggest that his attempts to do this with opponents such as Silvio Berlusconi and his People of Liberty Party have been firmly rebuffed and that weeks of negotiation lie ahead.

Key China think-tank expects 8% GDP growth in Q1 2013

State Information Centre (SIC), a leading government think-tank, said the economy would expand at an annualised rate of about 8% in Q1 2013, while the consumer price index would rise around 2.6% on an annual basis. Fixed asset investments are estimated to increase 21% during the quarter.

La Dolce Vita postponed

A near-300-point reversal in the Dow Jones Industrial Average Index after an 80-point rise usually means something quite momentous is happening to cause it. In terms of the S&P 500 Index, a rise of almost 0.7% on early indications of a centre-left victory in the Italian elections rapidly switched to a net decline on the day of 1.8% as it became apparent that the outcome was likely to be a hung parliament with Bersani and Monti holding the Lower House and the Senate being controlled by Beppe Grillo and Berlusconi. As we suggested in yesterday’s Daily might be the case on a bad election outcome, it has not helped the Euro which has fallen by 2.2% against Sterling from €1.135 to €1.16 and by 1.8% against the dollar to $1.31 in the past 18 hours.

China’s central bank to drain ¥5bn

People’s Bank of China (PBOC) said it would drain roughly ¥5bn (US$802.1m) from money markets through 28-day bond repurchase agreements. This follows the central bank carrying out a record drain of ¥910bn (US$9.7bn) from the banking system last week, raising concerns that Beijing is ready to tighten the monetary policy.

Italian politics, dark humour

So this is the state of politics in a country – the fourth largest economy in Europe – already renowned for flaky democracy. The current Italian elections for which the results are expected later today attract interest if only for the wrong reasons. Two of the candidates are comedians, Beppe Grillo (stand-up) and Silvio Berlusconi (lie-down ?) and centre-left Democratic Party candidate – thought to be the front-runner – Pier Luigi Bersani.

Moody’s lowers UK’s triple A rating

Credit ratings agency Moody’s downgraded the rating on UK government bonds by one notch to AA1 from AAA on Friday, citing that a high and rising debt burden indicates a weak economic outlook for the medium term.

Home prices in China rise in January

New home prices in China rose 0.8% y-o-y in January, snapping the 10 straight months of annual decline. Home prices rose on a monthly basis in 53 of 70 major cities, and were up 0.7% on an average from the previous month, after rising 0.4% in December, as per Reuters’ calculations using the National Bureau of Statistics data.

Japan manufacturers’ sentiment picking up – Reuters Tankan

The Reuters Tankan report, which closely correlates with the Bank of Japan’s tankan survey, indicated that the Japanese manufacturers’ sentiment rose 4 points to -13 in February and is on course to turn positive over the coming months. The index for non-manufacturers eased by 2 points to +8, but looked set to firmly rebound to +21 in May.

Oh, what a tangled web we weave…

According to various internet sources backed up by a (purple ?) hazy recollection, the U.S. National Aeronautics and Space Administration (NASA) conducted an experiment in 1995 in which spiders were dosed, separately, with drugs including mescaline, marijuana, and (shock horror !) caffeine. The effects this had on the webs that they weaved were observed and what stood out as unexpected was the effect of caffeine. The webs of spiders on stimulants that are usually perceived by humans to be ‘harder’ were generally still recognisable as functioning webs. However, caffeinated arachnids produced webs which any self-respecting insect, however large, could fly through.

China’s foreign inflows extend 2012 decline

China’s foreign direct investment inflows dropped 7.3% y-o-y to US$9.27bn in January from US$11.7bn in December, the Commerce Ministry said today. Separately, Moody’s said that China’s GDP is expected to grow 7.5-8.5% in 2013.

Sterling in the crosshairs

It must have been interesting for Team Britain at the recent G20 meeting to watch and listen as Japan attracted heat for its economic policies and the high-profile calls for more Yen weakness by its politicians. As some might say, ‘all’s fair in love and war’ and ‘it’s all relative’. In this case it’s the zero sum game that is the currency markets. In the past week or so, the focus of market chatter has swung more decidedly onto the possibility of a phase of more marked weakness in Sterling.

ECB downplays talk of currency war

ECB chief Mario Draghi said that while the euro exchange rate is not a policy target, it is vital to growth and price stability and that the central bank would have to assess the impact of the euro’s strength on the inflationary profile. Meanwhile, Bundesbank data showed that German banks owed ECB €49.5bn in January, €23.6bn less than a month earlier, a further sign that core Eurozone banks are returning to money markets after last year’s credit crunch.

Markets struggle with data lag

After the excitement of Planet Earth being visited by an asteroid and a meteorite at the end of last week, this week has kicked off with 2% rally in Japan’s Nikkei 225 in response to resumed weakness in the Yen as the country’s policies to ease its currency for competitive advantage appeared to dodge a bullet at the G-20 meeting of Finance Ministers and Central Bank Governors in Moscow. The Shanghai Stock Exchange Composite marked a return from Chinese New Year celebrations with a half-a-percent fall on more periodic concerns about the property sector.

UK home prices at a five-year high

UK home asking prices climbed 2.8% m-o-m to £235,741 in February, the property-website operator Rightmove said today. On y-o-y basis, prices increased 1.1%. In London, prices rose 1.2% to £486,890 on m-o-m basis, the smallest February increase in four years, and increased 8.4% on y-o-y basis.

Asteroid and beanz on the menu

There can be little dispute that beans are a significant part of U.S. Wild West legend. Who could forget Mel Brooks’ puerile but hilarious campfire scene in his 1974 film ‘Blazing Saddles’ where there was real risk of spontaneous combustion ? Whether Berkshire Hathaway’s Warren Buffett or Brazilian private equity billionaire Jorge Paulo Lemann were at least subliminally influenced by this classic piece of cinema may never be known but they have combined forces to acquire another classic in the form of H J Heinz in a $28 billion takeover bid which obviously meanz business.

EU proposes 11-nation financial trading tax from 2014

The EU proposed a tax on financial transactions in 11 countries (beginning January 2014) that could see it raise up to €35bn annually. EU Tax Commissioner Algirdas Semeta said the bloc’s financial sector was under-taxed by €18bn and this tax would be set at 0.01% for derivative trades and 0.1% for stocks and bonds. The EU plan calls for ‘residence’ and ‘issuance’ ties to companies in participating nations, in an effort to curb traders from escaping taxes by trading outside tax zones.

St Valentine, Patron Saint of Mergers

It’s interesting what echoes down the decades. Dateline: 14th February 1929. Chicago mob members caught up in Prohibition Era racketeering were gunned down, allegedly in cold blood, in what became known as The Saint Valentine’s Day Massacre. Despite all the circumstantial evidence claimed against him, it was eventually his conviction on tax evasion charges what done for Al Capone, leading to eight years in Federal prison, including a spell in Alcatraz.

Japan’s economy in recession, but shows signs of recovery

Japan’s GDP dipped 0.1% q-o-q in the last three months of 2012, contracting for the third straight quarter, Cabinet Office data showed today. On an annual basis, the economy shrank 0.4%. However, the Bank of Japan held the monetary policy steady and raised its assessment of the economy, citing it would resume moderate recovery aided by monetary easing, stimulus spending and revival in global growth.

Times past, times to come

Before we get down to business of the day, let’s just reflect on the fact that the ‘Financial Times’ business newspaper celebrates 125 years of existence today. For context, its appearance in 1888 was around four years after the U.S. Dow Jones Transportation Index – the oldest equity market index – was created and four years before the better known Dow Jones Industrial Average began life. The FT’s own 30-share index – the oldest continuous U.K. equity index – saw the light of day in July 1935.

US records US$3bn budget surplus for January

The US posted a US$3bn budget surplus in January 2013, the first surplus in the month of January since 2008, as per Treasury data released yesterday. The country suffered a US$27bn deficit the same month last year. The budget surplus was largely due to the expiration of a payroll tax reduction on 1 January. The government’s cumulative deficit for the fiscal year that began in October is US$290bn, 17% lower than the comparable first four months of FY2012.

Swimming with the shar….

As we tread the virtual red carpet towards this year’s U.S. Academy Awards due later this month, it is not entirely irrelevant to recall the classic sharkfest, ‘Jaws’ which won Oscars in the categories of Best Music (John Williams) and Best Sound in 1976. Who among us, reclining in a bath, would not still feel at least a twinge of unease on hearing the distinctive two-note cello sound of the shark’s own leitmotif all these years later?

G7 expected to issue statement to ease currency war

The G7 member nations are considering issuing a statement pledging their commitment to market-determined exchange rates, two G20 officials said yesterday. ECB policymaker Jens Weidmann played down the issue saying the euro was not overvalued and an exchange rate policy targeting a weaker euro would lead to higher inflation.

Markets hiss and miss?

Between mid-November 2012 and the start of February 2013, the S&P 500 Index and the FTSE 100 Index (in US$ terms) both gained by around 12%. Given the different stocks and economic context they each represent, this is remarkable except, perhaps, for the convenient catch-all that many global equity markets have long tended to be highly correlated. Certainly, apart from some modest ‘toing and froing’ between the markets in performance over different time frames, the charts of the two indices in US$ terms over the past twelve months are almost identical.

EU leaders strike a deal on long-term austerity budget

EU leaders reached an agreement on a long-term budget for the bloc, representing a reduction of around 3% from the last budget. Approximately €12bn was cut from the last budget proposal, mainly on spending for cross-border transport, energy and telecoms projects. Pay and perks for EU officials were also reduced by €1bn. However, spending on agriculture was left untouched. Furthermore, there was an increase of about €1.5bn on rural development over the seven years, meeting demand from France, Italy and Spain.

Asteroids, dinosaurs and snakes

Possibly among the earliest ‘last communications’ must be that of around 66 million years ago when a dinosaur commented to a colleague that the latest ‘whizzy’ thing was coming awfully close. Extensive evidence suggests that the ‘whizzy’ thing was an asteroid which, through colliding with earth, resulted in the extinction of the dinosaurs as the impact and associated environmental disruption temporarily suspended plant photosynthesis. It is a remote but sobering image so it is reassuring that, in respect of an asteroid scheduled to make a near-Earth pass next week, a NASA scientist has been quoted as saying ‘no Earth impact is possible’, something akin to a final observation on the bridge of RMS Titanic that ‘absolutely nothing can go wrong’.

Chinese trade data signals economic rebound

Chinese exports surged 25% y-o-y in January after rising 14.1% in December, while imports increased 28.8% after adding a modest 6% a month earlier. January’s trade surplus totalled US$29.2bn vis-à-vis the market expectation of US$22bn. Separately, the Consumer Price Index (CPI) expanded 2% y-o-y in January, largely in line with market expectations.

Central banks centre stage

The big focus today, at least in the City of London, is likely to be on the interrogation by the parliamentary Treasury Select Committee of the next Governor of the Bank of England, Canadian, Mark Carney, who is due to take over from Mervyn King in July. Even as the Bank’s current Monetary Policy Committee is expected to announce no change in stimulus policy at noon, speculation is rife that Mr Carney may favour more stimulus through a wider range of instruments. To some extent, the perceived possibility of a more relaxed monetary approach coupled with an easing of inflation targets and a heightened risk of loss of triple-A status, has been reflected in a 3.7% slide in the Sterling spot rate since late-December 2012 to $1.57.

Japan’s machinery orders rise further in December

Japan’s core machinery orders, a key gauge for capital spending in the coming six to nine months, rose 2.8% in December, after gaining 3.9% in November, the Cabinet Office said today. The orders rose 2% between October and December, marking the first increase in three quarters. However, on y-o-y basis, core orders fell 3.4% in December.