Good afternoon. The Libyan war has almost finished – Gaddafi is killed; let’s wait for the new authorities’ feats – for a while the revolutionaries’ portfolio contains only epic fails. At Sunday there will be elections held in Switzerland – the right-wing party, hoping to overcome the immigration, is expected to win. Russia has been criticising the US ballistic missile defence system – President’s Special Representative Rogozin begat a super-idea: to create a joint system that will fight the space junk – asteroids would be the first target and then we’ll get to the aliens; just like in the action movies – Medved granted the project with a sovereign resolution “quite fun”. Occupy Wall Street movement held rallies across Europe: the hot Italians have even burned the Defence Ministry building, for which earned unflattering epithets from the government. The military of Britain has other concerns - the “friend” of Minister Fox, of whom we wrote last week, deceived business partners, styling himself as a prominent figure and getting lucrative contracts, Fox realized that he too was compromised but that did not save him, for the journalists have revealed his frauds with the “friend’s” money. Presidential race is glimpsing in the United States – Obama arrived to Richmond to make a speech, but while he was preparing “to speak from my heart”, tough Virginian guys stole the truck with the rostrum and teleprompter from the parking lot of Marriott hotel, cleaned it out and left; Kremlinologists prone to conspiracy theories noticed that, unlike in Russia, the USA has a two-party system, so the party of crooks and the party of thieves compete with each other – and here is the result. Their democracy has far to go to reach our sovereign one!
Illustration: Artem Popov, ITinvest
Monetary markets. As usual, the gathering of the G20 financial authorities ended with nothing – even the decision to build up IMF reserves, which was expected, has not been taken under the pressure from Germany and the USA; as a result, everything is postponed until the high-level G20 summit, which will be held in Cannes on November, 3-4. Germany and France want to impose a tax on financial transactions - but the United States and Britain are against, for these transactions are significant sources of their incomes. Meanwhile, the financial system is again getting worse: in the US, 5 out of 6 leading credit card issuers reported an increase in arrears on the cards; in retaliation, banks impose fees on debit card purchases. Consumers swear and look for alternatives – one of them offered a good solution: “Buy a big mattress and put money under it – the bank rate is almost zero, but the mattress does not impose penalties”. More and more people in the Fed want to start buying mortgage-backed securities to stimulate the market – well, well. Of the central banks, the Brazilian stood out by lowering the interest rate by 0.5% for a second time in a row because of the obvious economic slowdown – however, the rate is still quite big (11.5%). Bank of England showed a rare unanimity at the last meeting – both in the preservation of rates and in the increase of the quantitative easing program.
Europe prayed on the Sunday’s EU summit – some even called it a “historic”; optimists were chilled by the sworn friends the Germans and Greeks – German Finance Minister Schaeuble and the Greek PM Papandreou advised not to rely on this event; by the end of the week it became clear that the agreement has not been yet made – and so there will be another summit on Wednesday! Rumour was spread about giving the EU stabilization fund to be given the right to buy bonds of a relatively prosperous countries – but there is no evidence; too has not materialized the information about the secret meeting of the EU, ECB and IMF leaders in Frankfurt. The situation in Greece becomes ever clearer: Schaeuble have already told the parliamentary committee that he does not rule out the default of Hellas; Moody's explicitly stated that the Athenian government would not avoid bankruptcy. After easing the soul the agency engaged in other matters: cut the rating of the Spanish government bonds and warned that within 3 months it may revise the rating forecast of France down from stable to negative – if the Paris government will not succeed in the budgetary and economic reforms; S&P downgraded the rating of Slovenia. In response, the European internal market commissioner Barnier proposed to forbid agencies to assess the ratings of the eurozone problematic countries – by bureaucratic logic, if you close agencies’ mouth agencies, there would immediately come a healthful climate.
Currency marketsare generally quiet – the euro was flying up and down on conflicting rumours about the exploits of officials, and the yen set a new record peak. The net short position on euro has declined, but remained impressive – the European currency has a potential for growth, but for the lion's share of last week there was a correction. Banks in Japan and Korea expand their agreements on currency swaps. More and more Swiss companies close their domestic production, taking them abroad – the frank is still too expensive; Federation of Trade Unions SGB insists that the central bank should raise the lower limit of the euro-franc cross-rate from 1.2 to 1.4. Similar processes are in Japan - Nissan has now decided to withdraw the production of a number of its models from the country overseas: yen is expensive and the demand is now weak everywhere.
Stock markets. Leading indices flew up and down, only the Shanghai Stock Exchange showed a new low. Reports are out actively and contradictory: some are good, some are bad. Banks are harshly reducing reserves for bad loans: profit of Citigroup has grown twice because of this, and of Bank of America – even by 3.5 times. Goldman Sachs has shown the second quarterly loss in its history, and its size was much higher than market expectations, with revenues – clearly below those; undershoot of Wells Fargo was noted too – although there was still a profit. UBS will drastically compress its investment banking – though quite an amount of money was spent on it when UBS has absorbed the business of Rothschild’s long-time partner Warburg. American Express report is not bad – but the market is dissatisfied with costs rising by 13% due to weak demand, requiring more and more carrots to encourage. Of brokers, we note a weak report of eBay, as well as the insistence of the regulators to increase capital for MF Global – the company was recently buying up bonds of the euro-periphery: the reason was the CEO Corzine, a former top manager of Goldman Sachs (after which he managed to work a bit as the Governor of New Jersey) – alas, Goldman’s strategies only works in conjunction with an administrative resource comparable in power.
Figures of IBM were taken badly by the market (they have not reached the forecasts), but Intel has pleased; floods in Thailand disrupted the factories of Western Digital – undermine equities of the company as well as of its partner Hewlett-Packard. Apple went down a bit: profit and revenues gave up too much to the analysts’ expectations – but forecasts are optimistic. Report of Microsoft was fishy enough and has been received respectively – results and forecasts are mediocre. AT&T did badly; Nokia has losses (sales of mobile phones tumble as does the total revenue) – but experts feared for the worse; without much shine (but not terrible!) reported the Verizon; and only Yahoo definitely pleased with its performance. General Electric disappointed by a sharp (by 1.5 times) slowdown in the inflow of new orders – but Honeywell has reassured. In the consumer sector (Coca-Cola, Johnson & Johnson, etc.) everything is bad: the figures average, forecasts are sluggish – won’t go far with the current demand. The airlines (American Airlines, Southwest Airlines) meet losses due to the rise of fuel costs (plus 40-70% over the last year).
Commodity markets. Commodity Futures Trading Commission (CFTC) has introduced restrictions on the number of open speculative positions for each market participant – on food, fuel, metals and other assets; the Republican committee members voted against – thinking that the powers of the invisible hand of the market should not be interfered with. Oil twitched, industrial and precious metals fell – especially aluminium and copper. Cereals, pulses, forage, cotton and vegetable oil looked weak; meat and milk hold ground, fruits are still expensive.
Asia and Oceania. China’s GDP in the third quarter grew by 2.3% against April-June and by 9.1% against July-September 2010 – the latter number is minimal since 2009; capital investments slowed down slightly – however, 24.9% growth in January-September is more than impressive, however disinvestment into the US (by 10%) and EU (by 2%) firms is alarming. The housing market calmed down too – prices are not as fast as in previous months. On the contrary, the acceleration has been observed in the industrial production (+1.2% m/m and +13.8% y/y) and retail sales (+1.3% and +17.7% respectively) – in general, the statistics is mixed. The Government of Japan reduced the economy assessment for the first time in six months – saying, “it slows down”, a jade. August industrial output was revised down by 0.2%; the index of business activity in all sectors of the economy has declined by 0.5%, leading indicators – by 0.3%, and average salary – by 0.4%. In September, sales in supermarkets were 2.4% lower than a year earlier – in August, the dynamics was better (-1.7%). Australian leading indicators, according to Westpac, rose in August by 0.8%; business confidence from NAB went into negative in the third quarter – and the voices are growing about the possibility of the Green continent’s economy to face a recession in some time.
Europe. The government has reduced German GDP forecast for 2012 from +1.8% to +1.0%; expectations in the UK from Ernst & Young ITEM Club are cut from +2.2% to +1.5%. The Spaniards have reported improvement in industrial orders in August (+9.3% y/y versus +2.6% in July), as did the Italians (+5.0% m/m and +10.5% y/y); the construction sector of eurozone has swollen slightly (+0.2% against July), and the figure for EU as a whole has remained unchanged. The index of economic expectations in Germany from ZEW fell in October to a minimum since November 2008; a similar picture is in the eurozone – but in Switzerland there is a small pullback, though quite natural after a wild collapse of September. Business activity slumps in Germany (according to IFO) and France. Foreign trade of Switzerland appreciated the sudden collapse of franc in September – exports soared, the balance has improved. Producer prices in Germany swelled in September by 0.3% m/m and 5.5% y/y; the British CPI soared by 0.6% and 5.2% (historical peak) and retail prices – by 0.8% and 5.6% (maximum since June 1991). British mortgage contracts again, amid rising house prices – and the difference between the south and the north has exceeded double-fold. Consumer sentiment of the Netherlands reached the 2.5-year low in October – quite logical considering the unexpected rise of unemployment in the country; the Britons have frowned down to the levels of April and the Eurozoners – of summer 2009. Only in Germany the registration of new cars in September was higher than a year ago – other leading EU countries (including Britain) are in the red. German retail in August was revised up in monthly dynamics and sharply down in annual (from +2.2% to -0.8%); similar picture in Britain – which is why even the sudden surge of September has not allowed the annual growth to surpass forecasts.
America. The Fed’s Beige Book noted a sluggish growth of the economy, retailers’ fears about demand in the holiday season, weakness of real estate market and financial activity – but the recovery in tourism and car sales. Industrial output grew in September by 0.2% (as a month earlier), while capacity utilization has not changed. The index of the Federal Reserve Bank of New York has not improved in October – new orders and employment ceased to fall, while inventories grew and the overall size of the orders portfolio shrank. The similar figure of the Philadelphia Fed has suddenly jumped to a six-month peak – but here the active stockpiling is disturbing too. Leading indicators grew in September by 0.2%; in Canada they sat down unexpectedly by 0.1% after stagnating in August. The inflow of foreign money into US bonds has expectedly rebounded in August - then has ended the row on the public debt ceiling, and the Treasury placed new securities; however, the portfolio of China became noticeably thinner – but this was offset by Britain, the Caribbean and Japan. Producer prices for final goods jumped in September by 0.8% m/m and 6.9% y/y (actually by more – without the hedonic perversions the annual increase will reach 8.5%); for all goods, prices swelled in 12 months by 10.3% (actually by 11.8%). Consumer prices added 3.9% (peak since September 2008) – and actually more than 7%; inflation, excluding food and fuel, is at the maximum since November 2008 (officially +2.0%, and in fact higher than +5.0%). In Canada, consumer prices have also suddenly jerked up – in short, inflation does not recede.
House purchases in the secondary market fell by 3%; the number of developments has jumped by 15% due to fluctuating multi-flat houses: without them there is +1.7% m/m and -4.9% y/y; building permits sagged; the number of single-family homes actually being built became less by 0.4%, so that the annual decline has reached 12.2%. Recent data is contradictory: housing market index from NAHB/Wells Fargo rose to a peak since last year’s May – but the index of home purchase loans from Mortgage Bankers Association fell to historic lows: this is despite the fact that interest rates are record low. The index of consumer comfort from Bloomberg gone a bit away from the bottom – in general, there is a sense that Americans have slightly lessened the degree of pessimism and expect for developments. Primary applications for unemployment benefits have kept above 400 thousand; recurring grew by 25 thousand – and the last week’s figure was revised upwards by the same number. Nominal wholesale sales in Canada increased in August by 0.2% m/m – adjusting for inflation, the figure goes negative. US federal budget deficit amounted to $64.6 billion in September (a year ago it was $34.6 billion), while revenues fell by 2.1%; overall for the fiscal year, the hole in the treasury has amounted to $1.3 trillion (almost 9% of GDP) – again surpassing the figure of previous year, albeit by only $5 billion. Of exactly how problematic is the situation in the United States indirectly speaks the intention of authorities to give visas to the overseas buyers of houses in excess of half a million dollars – up to this day the most powerful countries have refrained from granting such privileges.
Russia. In August, the trade balance was the worst since November. In September, industrial production fell by 0.3% against August and rose by 3.9% versus September of the last year (minimal growth since 2009) – however capital investments have accelerated (+8.5% y/y versus +6.5% in August). Agriculture soared by 29.5% due to the low base effect of the last year – on October 1, 65.2 million tonnes of grain was harvested against 43.5 million a year ago (but in 2009 there was 68.9 million); livestock provides a mini-growth; logging accelerated its decline. Construction is in plus by 16.5%, new housing – by 21.7%: the reason is the same – last year’s heat. Transport slowed down – only +0.5% y/y, while the railways see -0.1%. The expansion of retail (+9.2%) is maximal over the years – spree on loan spreads; consumer prices remained at the level of August and rose by 7.2% against September 2010 (fixed set of goods and services showed -0.5% and +7.8% respectively); producer prices have shrunk by 0.7% m/m and swelled by 18.0% y/y. Real disposable incomes grew by 3.2% y/y, and the real wages – by 6.2%: given the under-stating of inflation, the gains are in fact weaker; unemployment has declined – in short, everything is fine, beautiful marquise. According to our estimates, GDP grew in September by 3.5% y/y, and by 2.5-3.0% in the third quarter; the officialdom will show more. Export of capital by the private sector grows: during the first 9 months already $49.3 billion has flown away – it was worse only once, in 2009. At the gathering of the CIS, the heads of governments have “to their own surprise” signed a free trade agreement – Putin even had to change the content of his closing speech.
Medvedev held a meeting with his supporters. Metal-industry worker from Chelyabinsk told how his life has changed after meeting with the President six months ago: trams are now going, salary was raised, canteen repaired, the family went for a trip to the sea – they have even “improved demographic situation in the country”; Medved has decided that once he has such wonderful supporters, he should create an “expanded government’ for them. Putin got offended by comparison with Brezhnev: “The Soviet leaders could not work as much as I did, both by virtue of their physical condition, and because of misunderstanding of what to do. Maybe they would have been moving, they just did not understand how and where to. And there was no will to do so” – and indeed, they are too far from the Putin’s way of life: swimming in the submarines, flying the airplanes, throwing opponents on the mat and disregarding the work. Prime Minister visited the celebration of the 200th anniversary of Tsarskoye Selo Lyceum, making Pushkin-lovers get cold and wet – as was claimed by an anecdote, the office of deep drilling likes Pushkin’s phrase “fine impulses of soul!” Putin has his supporters – they supported the Eurasian Union and sought for the galaxy of Andromeda to become its ideological basis! Other authorities are not so creative: Matvienko made the head of the provincial election committee her aide (that’s not even a hint); Federal Migration Service wants to bring even more migrants to the country; Ministry of Health issued a bill depriving the paranoids and schizophrenics from access to state secrets; the average size of bribe in the country increased four times in a year. The public responds as it can: “People’s lot”, in protest against the poverty in Russia, captured the Aurora cruiser and hung out a pirate flag. Moose are getting drunk with rotten apples, and run out on the roads causing the motorists’ temptations – presumably, closer to the election there will be bears in the fur hats, drinking vodka, eating caviar and playing the balalaika.
Illustration: Artem Popov, ITinvest
Have a nice week!
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