Good afternoon. Non-economic news was not very plentiful last week – holidays are near, so the activity of politicians in the civilized world goes down. We only mention note another euro-nutter – the Norwegian Breivik was avenged in absentia by the Belgian Arab Nuriddin Amrani: he opened fire and threw grenades at civilians standing at a bus stop in the city of Liege – six were killed and over 100 wounded while the offender shot himself; as it turned out, he was rapist, murderer and lunatic, which did not stop him to roam freely – in the best traditions of European tolerance to various heathen. Meanwhile, the EU summit ended with essentially nothing – also as usual; adoption of a treaty that strengthens the financial union was blocked by the British PM Cameron, and that had unexpected consequences: Scotland has got angry and wants to leave the United Kingdom and join the eurozone – just in time.
Illustration: Artem Popov
Monetary markets. The Norwegian central bank cut the rate by 0.50% down to 1.75% per annum – the market was expecting a reduction by 0.25%. Swiss National Bank has nowhere to cut the rate – it is already zero; so they had to restrict themselves to a vague threat of “additional measures to be taken if necessary”. In Europe, everything is as before: after the failure of summit the leading rating agencies threatened with punishments – France got the most of them and President Sarkozy had to intervene: speaking of a possible downgrade, he spoke in the manner of Leopold Cat from the Soviet cartoon: “we will get around this trouble”. The Germans continue to play the eurozone’s Old Witch part – this time Bundeskanzlerin Merkel rejected the idea to expand the credit fund of the European stability mechanism above the planned €500 billion. Auctions for government bonds placement have been calm for the eurozone periphery – the demand is low for Italy, while it is much better for Spain; even the Greeks are not hopeless – they managed to get €1.6 billion for six months at just 4.95% per annum. That is more difficult for the banks – including the German ones: Financial Times writes that Commerzbank and another 3 credit institutions will soon ask for help; Fitch cut the ratings of Bank of America, Goldman Sachs, Citigroup, Barclays, Credit Suisse, Societe Generale, BNP Paribas, Credit Agricole, Deutsche Bank, Rabobank, Danske Bank and some other; Moody's downgraded the rating of Dexia – however, that is already rather dead, or a zombie at least. The American Republican Senators began to suspect that since the EU itself cannot solve its problems, it hopes for the Fed’ emission – Bernanke met with them and assured that the Fed has no such authority, so the Europeans will indeed have to settle their issues on their own.
Currency markets. Epic fail of the EU created a new wave of panic in global markets – dollar beat competitors gruesomely: euro fell to $1.2950, the Swiss franc fled to $0.9550 – among other things, it was unnerved by the central bank’s meeting, for according to rumours it could have lifted the bottom level of the allowed euro-franc cross-rate range; but this did not happen (the barrier remained at 1.20) – and frank took some revenge at the end of the week. The rouble fell against buck again – and it is not alone: nearly all developing currency tumbled (yuan, won etc.) – as global funds and European banks are pulling money away from these markets. The biggest sufferer now is rupee – for the last 4 months it has depreciated by 20% (as the rouble did in August-October), and last week the Indian currency showed a series of historic lows. The process has started?
Stock markets. Leading indices were very unhappy with the European clinch and worsening problems in the global economy - they subsided thoroughly, although the highs achieved previously have largely deprived this fall of its possible drama. Dow went under 12,000 points once again, Shanghai Stock Exchange showed a new minimum since March 2009 – and yet the winter growth is still possible.
Commodity markets. Oil fell down again – though not very strongly: even the Wednesday’s collapse has not changed the situation – and after the American WTI variety recouped only less than 30% of its growth in October-November; US natural gas continues the triumphant collapse to the multi-years lows. Industrial metals sensed the global economic downturn – and went down: aluminium reached the bottom since last summer. Also very impressive was the flight of the precious metals – platinum fell to 2-year minimum, gold reached $1560 per ounce, and silver - $28. Food prices are slowly being pressed down; cotton and timber are also getting cheaper – the inflation of costs recedes.
Asia and Oceania. OECD leading indicators are falling – in October the decline has slowed down, which is not surprising after the collapse of previous months, but it did not stop there; disturbing in the middle-term are the United States, Canada and China, and in the short-term substantially decreases the activity of the leading European countries (Germany, France, Italy and Britain), Brazil and India; slowing down was noted in Russia and Japan. Bank of Japan quarterly Tankan review has confirmed this: activity of major manufacturers is again in the red – forecasts are unfavourable; service sector is alive, but small business is sad; investments slow down while profits are declining. Japanese industrial production in October was revised down slightly; activity in the services sector grew slightly; consumer confidence has deteriorated and wholesale prices swell. Foreign direct investments into China fell in November by 9.8% against the same period of 2010 – the first negative value since July 2009; activity of the industrial sector (from HSBC) has improved in December but remained in the area of the recession – where employment has entered now (orders and output are there for a long time now); trade surplus continues to shrink – by more than 1,5 times in a year; monetary aggregates and new loans are slowing down; against this background it is not surprising that the authorities delayed the tightening of banks’ capital requirements. Australian trade balance deteriorates, numbers of construction developments and jobs are getting fewer, while consumers – sad. In India, industrial production fell in October down to the bottom since early 2009, and the trade deficit has reached a peak for 17 years. In short, the region is very sad.
Europe. Ireland’s GDP fell by 1.9% at once in the third quarter; annual dynamics went into minus. According to SECO, Swiss GDP will slow down in 2012 and prices will fall – they already did in fact: in November by 0.8% m/m and 2.4% y/y; production in the third quarter decreased by 1.4% against both the second quarter and July-September 2010. In October, production in eurozone fell by 0.1% after declining by 2.0% a month earlier. Orders tumble in the British industry with the worst pace since October 2010 – external demand is very poor. Indices of eurozone activity (PMI, ZEW) did not deteriorate, but entrenched deeply in the area of the recession: the fall of GDP by 0.3-0.5% is expected in this quarter. Business confidence falls in France; trade balances of France and the eurozone are dim; wholesale prices grow again in Germany and consumer price inflation everywhere: in the eurozone +0.1%, in Britain +0.2%, annual increases are 3.0% and 4.8% respectively (actually, a 3-4 % more). British housing is getting cheaper – but this process slows down; mortgage lending does not look bad by today’s standards. In Ireland, in July-September, the unemployment rate rose to 14.4%; in the same time the eurozone employment had suddenly decreased by 0.1% - almost getting back to the crisis lows; the British unemployed has increased by 128 thousand in August-October. By the way, for all the fans of “hard-working Germans and slackers of periphery”: an average Italian works for 1778 hours in a year, and a German – only 1419; so the usual relaxedness of the southerners is only compensating for the excess burden on them. British retail sales fell in November – many believe that the country GDP will show a decline in the current quarter.
America. Small business optimism has grown in the USA in November; and in December – economic optimism from IBD/TIPP; in Canada the index of leading indicators has pleased in November. Indices of the Federal Reserve Bank of New York and Philadelphia swell in December – the basic components improved, except for employment in Mid-Atlantic region. Actual results are less beautiful: industrial production and capacity utilization has decreased in December by 0.2%; current account is in deep deficit - and the figures of previous periods were revised downwards; net inflow of foreign money into US securities was negative in October - even without short bonds the failure is still obvious (+$4.8 billion after +$68.3 billion a month earlier). Producer prices for final goods rose in November by 0.3%, and excluding fuel and food – by 0.1%; the annual increase of the latter (officially 2.9%, actually more than 4.5%) is maximal since June 2009. Consumer prices increased by 3.4% y/y – actually by 6.6%, without fuel and food the annual increase (2.2% and actually 5.4%) is greatest since autumn of 2008. National Association of Realtors will revise the number of home sales in the secondary market since 2007 next Wednesday – the methodology proved to be worthless, and the figures will be reduced.
The mood of Americans, according to Bloomberg, has improved slightly in the second week of December – but remained gloomy on the whole. Primary applications for unemployment benefits fell again – again to blame the Labour Ministry’s blunders with the adjustment coefficients for seasonal and calendar factors; judging from the numbers of coming weeks, we will see the same strange fluctuations around Christmas and New Year holidays. Retail sales rose in November by 0.2% m/m and 6.8% y/y; but adjusted for inflation (real) and population growth, we get -0.1% and -0.7% respectively; on the graph the contrast between two versions can be seen – in fact, the demand dangles around crisis lows. Weekly measurements of purchases in the shops are even worse: after the burst of Thanksgiving there were two weeks of decline on both popular versions (ICSC-Goldman Sachs and Redbook Retail Average) – so now the annual increase is clearly below even the official inflation, not to speak about the real one. In Canada, sales in the manufacturing sector fell in October by 0.8% after rising for 2.6% a month before. Demand is weak everywhere: in Brazil, for example, retail sales in October remained at the level of September (adjusted for inflation that, of course, means recession), and the overall economic activity began to decline. Problems are likely to worsen: China threatens to introduce a duty on American cars, accusing the USA of “dumping and subsidies”, - and this is the most lively industry in America now.
Source: U.S. Census Bureau, independent evaluations
Russia. Rosstat issued the detailed results of the census of 2010. They imply that 5 million people in Russia are not her citizens – these are mostly Asian guest workers; the Russians are now 111 million left According to the Foreign Ministry, about 6 million people (the vast majority of them are Russians) “temporarily” live outside of Russia; so in reality 136.9 million lives in the country, of which 131.9 million are citizens and 105-106 million are Russian – and yet 22 years ago there were 120 million of the latter. According to Rosstat, GDP grew in the third quarter by 4.8% over the same period in 2010 – we have only +2.5%, so the usual difference with official remains the same; in general for January-September we got +4.1% and +1.8% respectively. In November, industrial production has added 0.1% n/n and 3.9% y/y; manufacturing sector dipped versus October, but swelled against November 2010 by 4.9% - the 2/5 of this value fell on cars (+24.8%), but, as we wrote in the previous review, AvtoVAZ is already in the red by 17%. The federal budget got a deficit of 1.6% of GDP in November; for 11 months the surplus amounted to 2.8% of GDP or 1.3 trillion roubles – but since the peak of spending is in December, the figure expected for the year as a whole is 0.1-0.5 trillion, or 0.2-1.0% of GDP. As always, innovations flourishing: the Moscow subway turnstiles were covered with spectacular triangular metal pieces to deal with fare-dodgers – development of this technological masterpiece, as it seems, took some 20 years.
As for politics, it was concentrated around Putin’s conversation with the people – but, God, better there wasn’t one... Post-election opposition rallies collected a mega-audience – responsive gathering of Nashi, despite the handouts to participants (by the way, not everyone were deservedly paid), looked pitiful. First Deputy Prime Minister Shuvalov, thought to become the Duma Speaker rejected his parliament seat (from Primorsky region) – saying offended: “based on the amount of investments, the way we worked there, the results could be better” (they got only 33%) – characteristic phrases erupt regularly through the politesse of kleptocracy. Committee for fair elections is being created urgently in the United Russia – but in fact the issues are different: Vologda Governor Pozgalev resigned because of the bad numbers for EdRo – and it is precisely in this area, were the elections were said to be completely fair. At the same time the authorities raised the salaries of the police – however, it appears that it is not so easy: Moscow police does not like EdRo, whose rating among its ranks is derisory 3.8% - angry pro-Kremlin cyber-bandits immediately laid the site of the Moscow police union down. Personnel changes are planned in the Duma - former Speaker decided not to go for the third term, expressing the willingness to do anything requested by the authorities: everyone wonders where the author of “Parliament is not a place for discussions” statement would go – for we know that wherever he laboured, Gryzlov-Man always came and silently corrected all.
Permutations are coming at the bottom too: gymnast Khorkina will be replaced by boxer Valuev (nicknamed “The Beast from the East”), and dancer Zakharova by the singer Maksakova Igenbergs (nicknamed “Married to the Mob”); anecdote comes to mind, however, about the questionable benefits of moving beds in a brothel . The concerns of opposition are different – Prokhorov wants the presidency: his friends have promised to marry him quickly – otherwise the rumours around tycoon are quite insulting for the hero of Courchevel. Putin’s election headquarters were headed by director Govorukhin, who took to the team a worker, an executive, ambassador to NATO Rogozin and analyst Burmatov: the latter is famous for faking EdRo aid in fire fighting and aggressive trolling in Livejournal for the glory of his party. Rating of Putin is terrible – it only was worse in August 1999, immediately after the appointment of a little-known person as the head of the government. But the authorities don’t worry: President’s Executive Secretary has registered six trademarks, the names of which contain the word “Kremlin” – they will be given to vodka, brandy, beer and other beverages. No doubts, opposition will respond accordingly. All these promises us even more “fun” elections than the ones for Duma.
Illustration: Artem Popov
Have a nice week!
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