The recent data flow from the US has been reasonably encouraging; spending is up and some of the leading indicators are showing ‘tentative’ signs of improvement. This more positive story is likely to be underlined by a decent Q3 GDP growth figure of around 2.5% q/q annualised this week, boosted by consumption and net trade. The recent rally in equity prices, stronger housing data and employment growth may also support consumer confidence, while durable goods orders may also improve, given evidence from the ISM report. On its own, the US data is likely to further diminish the prospect of QEIII in November, but much still depends on the market reaction to the Eurozone summit.
A quiet week spent waiting/wishing/hoping/praying that somebody would come up with a viable plan to sort out the Eurozone’s banks and sovereign debt; France’s President Sarkozy even dashed off to Germany to plead with Chancellor Merkel, to no avail. G-20 leaders meeting in Paris last weekend warned that another summit on Wednesday might be needed. Equity indices retreated from last week’s highs at the upper edge of the bands that have dominated since early August, though the Shanghai Composite managed a weekly close at the lowest price since March 2009. Treasury yields eased a little but benchmark 10-year sovereign spreads over Germany are at or close to record highs in many countries, France set a new record 118 bps over the Bund’s 2.00% (and politicians are debating the potential threat of contagion from Greece!). In the FX market investors are ‘subtly’ distinguishing between inherently strong currencies from the weak, selling the ZAR, MXN, TRL and Eastern European ones to the tune of 4.0% to 2.0% against the USD, USD/JPY touched new record post-WWII 75.80. Commodities also sold off a little, many Base Metals at their lowest prices this year.
In the UK, CPI is running at +5.2% y/y a record high and as high as it got in September 2008, although BoE governor King keeps on insisting it’s a ‘blip’. Since April 2006, CPI has been under the 2.00% target for just the 6 months around September 2009, yet activity continues to falter and unemployment remains high. RPI ex-mortgage payments at +5.7% y/y is the highest its been since late 1991. US September PPI at +6.9% is close to the highest seen since Paul Volker started fighting inflation in 1980 (inflation in October 1979 ‘peaked at 28.9%!!); CPI not too cute either at +3.7% y/y. German PPI same idea at +5.5% y/y and Canada’s CPI +3.2%. Not surprisingly Eurozone Consumer Confidence is back at –19.9 where it was 2 years ago and about its weakest since the single currency was introduced except at the depth of the financial crisis in 1Q09.
In Japan, there are signs that the recovery from the March 11th earthquake has lost momentum. The coming week will confirm whether this is the case with September readings of IP and exports important. In Germany, the Ifo and this week's PMIs should shed more light on the recession risk for the German economy. With low interest rates, stabilising markets, better-than-expected news from the US and China and more determination to solve the Eurozone crisis, German businesses should have become a bit more optimistic. For the time being, the sound fundamentals should prevent the German economy from falling into recession. There are central bank meetings in both Canada and New Zealand. Despite the deteriorating global backdrop, the relatively good domestic situation in both countries is likely to merely result in a more cautious assessment on the outlook for the economy rather than any policy action.
A quiet week spent waiting/wishing/hoping/praying that somebody would come up with a viable plan to sort out the Eurozone’s banks and sovereign debt; France’s President Sarkozy even dashed off to Germany to plead with Chancellor Merkel, to no avail. G-20 leaders meeting in Paris last weekend warned that another summit on Wednesday might be needed. Equity indices retreated from last week’s highs at the upper edge of the bands that have dominated since early August, though the Shanghai Composite managed a weekly close at the lowest price since March 2009. Treasury yields eased a little but benchmark 10-year sovereign spreads over Germany are at or close to record highs in many countries, France set a new record 118 bps over the Bund’s 2.00% (and politicians are debating the potential threat of contagion from Greece!). In the FX market investors are ‘subtly’ distinguishing between inherently strong currencies from the weak, selling the ZAR, MXN, TRL and Eastern European ones to the tune of 4.0% to 2.0% against the USD, USD/JPY touched new record post-WWII 75.80. Commodities also sold off a little, many Base Metals at their lowest prices this year.
In the UK, CPI is running at +5.2% y/y a record high and as high as it got in September 2008, although BoE governor King keeps on insisting it’s a ‘blip’. Since April 2006, CPI has been under the 2.00% target for just the 6 months around September 2009, yet activity continues to falter and unemployment remains high. RPI ex-mortgage payments at +5.7% y/y is the highest its been since late 1991. US September PPI at +6.9% is close to the highest seen since Paul Volker started fighting inflation in 1980 (inflation in October 1979 ‘peaked at 28.9%!!); CPI not too cute either at +3.7% y/y. German PPI same idea at +5.5% y/y and Canada’s CPI +3.2%. Not surprisingly Eurozone Consumer Confidence is back at –19.9 where it was 2 years ago and about its weakest since the single currency was introduced except at the depth of the financial crisis in 1Q09.
In Japan, there are signs that the recovery from the March 11th earthquake has lost momentum. The coming week will confirm whether this is the case with September readings of IP and exports important. In Germany, the Ifo and this week's PMIs should shed more light on the recession risk for the German economy. With low interest rates, stabilising markets, better-than-expected news from the US and China and more determination to solve the Eurozone crisis, German businesses should have become a bit more optimistic. For the time being, the sound fundamentals should prevent the German economy from falling into recession. There are central bank meetings in both Canada and New Zealand. Despite the deteriorating global backdrop, the relatively good domestic situation in both countries is likely to merely result in a more cautious assessment on the outlook for the economy rather than any policy action.
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