Good afternoon. Natural disasters claimed many lives last week – especially in the Philippines, where the storm Vashi killed more than a thousand people and affected more than third of a million. In Russia, a drilling platform sank (53 dead) – and, as usual, the disaster was a winter snowfall coupled with the pre-holiday shopping causing terrific traffic jams in Moscow and surroundings: by some estimates, on Thursday morning the total length of traffic jams in the capital reached the prodigious value of 3400 km. Of political news we note the death of “Dear Leader” Kim Jong Il which has caused hysterical public grief of the local population – however, it was comforted with the accession of the deceased’s son, “the great successor” Kim Jong Un, of whom is only known that he is not yet 30 years old and that he is obese. Riots are ongoing in Egypt – during which was burned the Cairo Research Center built by Napoleon some 210 years ago: priceless artifacts are irretrievably lost – indeed “there is a beginning of revolution, but revolution has no end!”
Achievements of democracy have no end too. The Federal Court of Manhattan studied the participants of September 11 terrorist attack, beyond the always guilty al-Qaida – for the best effort, the Court has invited suspicious Iranian ayatollahs, but they malevolently refused to appear and were considered terrorists. The alliance between Sunnis and Shiites, who do not recognize each other’s faith true, is hardly believed by all except the US courts – but they tell the same story: “the enemies burned down our home”. Outstanding examples of freedom were manifested in the domestic life – something new was introduced by the firemen of Tennessee, who faced the problem that many people can’t afford paying regular contributions to firefighters during the crisis. And two families who have not paid $75 were taught a harsh lesson of Protestant ethics - not only firefighters didn’t extinguished the fire, but they came to the call and openly did not do anything but having fun looking at the building collapsing despite the desperate cries of poor householders. And in the neighboring district the annual fee is $110; while in the case of a real fire the firefighters will have to be paid $1,100 for every hour they work on the site – how many can afford this now?
Illustration: Artem Popov
Monetary markets. The Swedish Riksbank lowered the rate by 0.25% to 1.75% per annum; the Bank of Russia – by 0.25% to 8.00%; central bank of Hungary, by contrast, raised the rate by 0.50% up to 7.0%. Bank of Japan left rates unchanged near zero, but worsened the assessment of economy; protocol of the last meeting of the Bank of England showed unanimity in preserving the parameters of monetary policy – but a hint of future expansion of the emission is still present. Fed tightens restrictions on the activities of large banks (more capital, cut-down limits on the issuance of loans, regular stress-tests etc.). Meanwhile, the budget deficits force the authorities of all countries to enhance bond issue: the Japanese will sell them for another $2 trillion over the next year – similar sums are needed by the United States, eurozone and China; there would hardly be enough private buyers for such amounts, so the central banks have some work to do and the new waves of emission are apparently inevitable. Also predictable is the ferociousness of agencies: S&P downgraded Hungary by 2 points; Moody's has done the same with Belgium and Slovenia; Fitch wants to cut the ratings of France, Italy, Spain, Belgium, Ireland, Slovenia, Cyprus, some banks and the euro-stabilization fund; it also threatens the US – but with a postponement until mid-2013; S&P decided not to wait and has already downgraded Goldman Sachs – they encroached on the holy, the scoundrels!
So far, the euro-periphery is showing signs of life: auction for short Spanish papers has been successful – the demand is great, and more money was managed to be attracted than was expected; the Greeks also pleased with the successful sale of 3-month bonds – at just under 4.7% per annum. In the first 11 months of this year, the budget deficit of Spain was smaller than was feared – accounting for 4.8% of GDP; but difficulties are up in front – and the new PM Rajoy likened his fiscal objectives with the need to feed four hungry people with the meal enough only for two of them. Semi-annual review of the ECB notes the growth of problems in the banking sector: the chance of mega-lenders’ bankruptcy is greater than ever, bringing third-party money into capital is difficult, liquidity is not enough etc. All this resulted in huge demand for 3-year central bank's loans: 523 credit institutions have taken €489 billion at 1% annual (twice more than expected), 23% of which took the Italians. This will facilitate the liquidity problems – but will not solve the fundamental problems of the region's financial system; moreover, the central bank’s position is being aggravated – it gives cash for collateral of banks’ crappy assets, risking a grandiose margin call. The disturbing picture is complemented by the interview of Nobel laureate Stiglitz – with a dark look for 2012.
Currency markets. The main rates showed no specific dynamics – fluctuating sharply in their ranges; only pound grew – that happens regularly to him near the New Year holidays. Swiss Finance Minister Eveline Widmer-Schlumpf has again scared the markets with desire to lower the franc – but did so in a somewhat strange manner: she said that the purchasing power parity of the franc against the euro is 1.35-1.40 – though in fact it is nearly 2.00; apparently the M-me actually had a "fair price for the current situation" in mind, but not the parity. Ruble took revenge on the complacency of world markets – but at a high price: in the middle of December, gold and foreign currency reserves fell by $11.7 billion per week (and in 4 months – by $42.7 billion), reaching a nine-month low of about $500 billion.
Stock markets. Leading exchanges jumped on the joy of ECB giving kudos – but not strong; with the index of Shanghai Stock Exchange setting a new bottom since March 2009. IT sector in the US was quite disappointed with the report of Oracle: income and revenues clearly did not lasted up to predictions – traders immediately cut down the company’s stock by 14%, though they are still quite expensive.
Commodity markets. General easing has pleased the oil prices – also helped the sharp decline of its reserves in the USA: fuel has risen in price by 5-6% while the price difference between Brent and Light has narrowed to less than $8 per barrel – and the natural gas in America continues to fall in price rapidly. Industrial metals slightly rebounded upwards, and the precious stood still. The food is nevertheless confident that any emission means more excitement in this segment of the market: cereals, pulses, vegetable oil and feeder flew up from the lows; milk and beef got back to the recent highs – however the pork is grim; timber has revived – but cotton, sugar, cocoa and coffee were still unhappy.
Asia and Oceania. New Zealand's GDP grew in the third quarter by 0.8% due to the Rugby World Cup, bringing a fair number of tourists to the small country – 130 thousand. Business activity set a 20-month peak in November, but in December confidence has deteriorated; in July-September the current account balance showed a growing deficit (4.3% of GDP against 3.7% in the previous quarter). In Australia, in October, the index of leading indicators from Westpac has swelled by only 0.1% m/m; in Japan at the same time the rate of activity in all sectors of the economy recouped the September decline (+0.8% after -0.7%); the index of business conditions in China fell again in December. The Japanese trade balance was again in a deficit in November – and much larger one than was expected; last year exports fell by 4.5% (into Asia – by 8.0%, including by 7.9% into China), but imports jumped by 11.4%. Japanese wages are stagnating, and demand falls; sales in stores decreased in November by 1.9% against the same month last year (the fifth minus in a row), and in supermarkets – by 2.3% (the fourth); and yet only a month before the reductions were only 0.5% and 0.9% respectively. In Taiwan and Singapore industrial production has collapsed in November – the latter showed terrific -25.2% m/m: however, the main cause was the floods in Thailand.
Europe. Italian GDP fell by 0.2% in the third quarter, and the only positive contribution was the one of net exports – otherwise everything would be even worse, for consumption and investments have shrunk. At the same 0.2% has reduced the GDP of the Netherlands; but the British economy grew by 0.6% instead of the previously announced 0.5% - alas, that only happened because April-June was revised from +0.1% to 0.0%; moreover, 0.6% of the growth was brought into by bloated inventories while the final sales remained unchanged. French GDP was revised from +0.4% down to +0.3% q/q – not much joyful. Production in the construction sector of the eurozone fell by 1.4% in October after declining by 1.5% a month earlier – the value has reached a 10-month low, returning to the crisis lows. In October industrial orders sank in Spain and Italy – especially bad is the cases of the latter: -1.6% after -8.2% in September – that is a bit too much; it is believed that the GDP of the Apennine republic is again in the red. Business sentiment has deteriorated in Sweden in December and improved in Belgium; and in Germany the business climate indicator from IFO grows for the second consecutive month – and expectations here are ever more optimistic.
Britain's current account balance showed a record decline in the third quarter (more than twice against the previous quarter); the same figure for the eurozone went from plus to minus in October due to the outflow of speculative money; on the contrary, trade balances of Italy in October and of Switzerland in November improved noticeably. Swiss monetary aggregates slow down; producer prices in Germany, France and Sweden rose in November by 0.1%, 0.4% and 0.8% respectively; German import prices swelled by 0.4% - but their annual increase is reducing. British housing is getting cheaper, and consumer sentiments are unstable: according to Nationwide, they have improved slightly in November – but in December, according to GFK/NOP, they were deteriorating again, and the index approached the 35-year low. The mood of Belgians and Germans has brightened a bit - but in the eurozone as a whole pessimism is growing. In October, Spanish sales and employment in the service sector fell; retail sales in Italy grew by 0.1% after declining by 0.3% a month earlier; and in the UK in December there was an understandable surge in purchases – but the forecasts for January are very sad. In general, Europeans are tightening their belts: pre-holiday spending was cut by all – especially the Dutch (twice). Demand is weak everywhere…
America. US GDP was revised up to +0.4% q/q (from the initial +0.6%;, adjusting for false deflator, we get -0.2%, -0.4% per capita q/q and -2.0% y/y; Canadian GDP has ceased to grow. Leading indicators have grown because of such stupid components, as yield spreads of the bonds of various terms, monetary mass and optimism about the future. Orders for durable goods swelled due to volatile transportation component – while the key component of net capital orders falls for two consecutive months. Canadian inflation slows down, deflation in the US housing accelerates. The number of construction developments in the United States has skyrocketed because of the volatile multi-family homes - in the single-family sector the growth is modest, and the number of houses really being built hasn’t changed against October and fell by 10.9% y/y. In the secondary market the picture is same – and the National Association of Realtors has lowered all the data from 2007 by 14.3%, so the case here is even worse than was reported. NAHB Housing Market Index grew in December – but remained weak. Consumers have cheered before the holidays – this is reported by Bloomberg and the University of Michigan; but spending is nailed down, despite the holidays – and incomes in real terms are very weak; the savings rate has fallen to the bottom since the summer of 2008 – and soon the Americans will have to bring expenses in line with incomes. More and more people lose their right for unemployment benefits – which is getting reflected in the numbers; and in Canada everything is good with employment and demand – sales grew up.
Russia. According to Rosstat, investments and industrial production slowed down in November, and the manufacturing sector went into minus. Agriculture continues to show rapid growth due to low base effect of 2010 (+41.7% y/y after +51.8% in October) – but in December it will go away. Construction slows down too - but introduction of housing, in contrast, accelerates; the annual increase in freight transport accounts for only 1.1%. Some solace came to over-inflated retail – which makes sense given the stagnation of real disposable incomes of Russians; paid services gradually slow down. There was a rare situation with inflation in November where y/y the consumer price index grew less than a fixed set of goods and services; producer prices swelled by 1.6% m/m and 15.7% y/y. According to our estimates, GDP grew by 3.4% y/y in November (versus 3.7% in October) and by 2.1% for the whole 11 months – officials will, apparently, show something around 5.5% and 4.0-4.5% respectively. Symbolical for our economic can be considered the story about Yamal-201 satellite, malfunctions of which caused problems for television and Internet: upon reflection, experts simply reloaded the machine’s software – and it worked: it’s interesting what kind of software that was that it hangs up so spectacularly – stolen or sovereign-democratic?
Medvedev developed furious activity: first, he amused people at the EurAsEC summit showing some intemperate joy on an unknown occasion, and then read the annual address, in which on the one hand he praised stability and on the other – declared political democratization. The same inconsistent is present with all the authorities' responses to the questions about elections: results of the vote in some areas are being reviewed – at the same time the United Russia fraction is being "strengthened" by changing its charter, under which MPs can elect the head of association, but have no right to fire him after! Odious MP Burmatov was almost made chairman of the education committee – the public outrage was so great that the authorities stepped back with this idiotic idea; boxer Valuev was made a special chair (but even that did not fit); security services wiretapped Nemtsov and leaked records to the media; Putin's headquarters complain that it is being blocked in the Internet – in short, life is boiling. Putin began on the path to the presidency: called opposition Bandar-logs and suddenly discovered the existence of corruption in the energy sector – and who would have thought! He also changed unreliable Surkov by loyal Ivanov at the head of the presidential administration – so far nothing more has happened, for there are more important things to do: there is a bickering of "family" businesses going on - Medvedev's (mainly Dagestani) jostle the Putin's before the guard changing in the Kremlin; but Putin’s cousin will build highway "Kolyma" near Oimyakon – maybe for Medvedev?..
*** The next review will be published on 09/07 January 2012 ***
We wish you happy holidays!
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