Political and Economic Developments
Though events in the Middle East have overshadowed all else, some of this week's economic numbers are worth considering. Japanese October Supermarket Sales were –5.2% Y/Y, close to February's –5.4% and not far off the record low –7.1% of 2005; Large Retailers Sales –7.2% (negative territory that has dominated for most of the last fifteen years), while nationally CPI is running at a new record –2.5%. Q3 GDP figures tweaked: US's down a little, UK's a little less negative, and Germany's unchanged from the original estimate – German precision. Eurozone October M3 Money Supply growth has collapsed to just +0.3% Y/Y (record low) from a peak at +12.5% this time in 2007, while Bank Lending to the private sector is shrinking at an even faster pace than the previous month, -0.8% versus –0.3% (another record).Underlying Themes
Economists say 'global imbalances' are to blame for the world's current woes, pointing to China's mammoth foreign exchange reserves and the US's twin deficits. While in absolute terms these dwarf anything else, 'imbalances' can be found much closer to home. Valuations on almost any financial and quasi-financial asset are dubious at best, or inflated. Some are beginning to wonder what will happen to these as and when government stimulus packages are withdrawn. On a corporate and individual level the gap between the haves and have-nots has also ballooned over the last twenty years. A case in point: ex-topless actress and soon to be ex-Mrs Berlusconi's demands for alimony equivalent to £39 million per annum. Ex-model Carla Bruni-Sarkozy's childhood castle near Turin is up for sale again for €19 million, just months after being bought by Saudi billionaire Prince Alwaleed bin Talal. One wonders why flip so soon, though do note that local pilgrims at this year's Hajj are estimated to be down by 40% (the authorities blame it on swine flu fears).
What to watch for next week
Sunday 29th presidential elections in Equatorial Guinea and Uruguay and Eid Al Adha holidays in several Middle Eastern countries up until Thursday at the latest. Monday Japan October Industrial Production, Labour Cash Earnings, Housing Starts and Construction Orders, Vehicle Production, German Retail Sales, UK Consumer Credit, Mortgage Approvals, November Hometrack Housing Survey and GfK Consumer Confidence, EZ16 CPI and Chicago Purchasing Managers. Tuesday the 1st December the Reserve Bank of Australia decides on rates (almost unanimously expected to raise by 25 basis points to 3.75%), Eurozone October Unemployment, US Construction Spending and Pending Home Sales, November UK Halifax House Prices, US Manufacturing ISM and Vehicle Sales. Wednesday EZ16 October PPI, UK November Construction PMI, US Challenger Job Cuts, ADP Employment Change and the Fed's Beige Book. Thursday Japan Q3 Capital Spending, EZ16 October Retail Sales and Q3 GDP, UK November Services PMI, US Non-Manufacturing ISM and the ECB decides on rates (expected unchanged at 1.00%). Friday US October Factory Orders, November Non-Farm Payrolls, Unemployment, Hourly Earnings and Workweek. Sunday 6th the second round of Romanian presidential election.Positioning and Technical Analysis
The 'funicular railway' that are stock markets came to a sudden, juddering halt and rallies linked to stimulus packages and/or investors embracing 'riskier' assets are due for a clear-out. However, though the initial reaction may be to buy US dollars again, we caution against this. Instead the value of the greenback is likely to get hit as problems in the Middle East spread, because their currencies are pegged to it. Also, with precious little left to repatriate and shore up balance sheets, the effects will not be the same as in 2008.Have a nice weekend!
Mizuho Corporate Bank
Disclaimer
The information contained in this paper is based on or derived from information generally available to the public from sources believed to be reliable. No representation or warranty is made or implied that it is accurate or complete. Any opinions expressed in this paper are subject to change without notice. This paper has been prepared solely for information purposes and if so decided, for private circulation and does not constitute any solicitation to buy or sell any instrument, or to engage in any trading strategy.
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