Good afternoon. Republican primaries in New Hampshire strengthened the leadership of Romney – all the worse: his chances against Obama are small – because he is Mormon and colourless against a far more picturesque Barack. A new defence act has been introduced in the United States – now anyone anywhere in the world can be arrested (if necessary, by the structures of the US Army) and detained indefinitely on suspicion of involvement with any terrorist organization. The desire for freedom sometimes bears quite specific fruits – so, in the state of Georgia a creative textbook of mathematics was published where, for example, such a task is given: “If a slave is being beaten twice a day, how many times he will be beaten over a week?” – Local public is in shock. And the Pennsylvania students breaded microwave with YouTube – while cooking once can look up a video on its door. Creativity is not inferior to North Korea: Kim’s death was mourned there by birds and bears, who emerged from dormancy; people mourned too – and who did it not hard enough was sent to the camps for a six-month occupational therapy; a documentary film about the heir Kim was shown where he was named “the genius of geniuses” – and a calendar for 2012 had to be withdrawn, for it inappropriately wished good health to the deceased leader.
Illustration: Artem Popov
Death to SMS-dollars!
Monetary markets were calm. Bank of Korea, Bank of England and ECB left the parameters of monetary policies unchanged - and the statement of the eurozone central bank head Draghi was soft enough so he has confirmed his dove reputation, especially compared to his predecessor Trichet. The current surge of liquidity due to ECB’s handout of cash before the New Year has generated a hefty demand for treasuries around the world – that was not a surprise for the USA, but the euro-periphery enjoyed unexpectedly aggressive buy-outs: Spain and Italy were able to place their bonds at very good yields – Spaniards have even doubled the volume against the target. However, the problems of Europe did not fail to be reminded by the politicians and agencies: representative of the German CDU called Greece “hopeless”, and Moody's cut the rating of the Spanish region of Valencia; Fitch does not expect to lower the French ranking before the end of this year – but after... The reaction of the Parisian authorities is funny – Premier Fillon said: “We are a great country, no matter what rating we are given” – well, well. On Friday the eurozone was knocked down by a rumour that S&P will downgrade ratings of France, Italy, Spain, Austria, Belgium and Portugal.
Currency markets. As expected, the story about the wise wife of the Swiss central bank chief Hildebrand couldn’t be put on brake: public indignation caused “one of the most promising financiers of the world” to step down. The Iranian authorities enraged about the fall of the local currency under the pressure of external sanctions – and found a curious way out: they forbade its citizens to use the word “dollar” in their SMS – such messages simply don’t reach the recipient; we suppose, a great stabilization should follow immediately. The pound fell against all around – especially against euro, oddly enough; the latter, in turn, updated its multi-months low against the dollar, then rebounded a bit – and has fallen even more afterwards; rouble cheered on the general optimism – and in general, the first half of January has turned out to be unprecedentedly quiet on FOREX.
Stock markets behaved rather optimistic too – however, no substantial growth has been managed, for there is no reason. Very significant is the idea of the British authorities to change the law in order to increase shareholders’ control over incomes of the managers – “the of top-managers revolution” was one of the most visible consequences of total liberalization of 1980-90s. At the same time London blocks the idea of EU to introduce tax on financial transactions – protecting its self-interest as the world financial center. First reports for the fourth quarter came out – as usual, Alcoa gave a start: the aluminium giant reported first loss since 2009 - particular market reaction has not followed, since the company’s stock is already nearly half the year-ago levels. J.P. Morgan Chase report is simply bad: profit and revenue are weaker of forecasts, assets shrink because of their realistic reassessment. Royal Bank of Scotland announced plans to cut 3,500 employees of the investment division and to shut down or sell a number of its businesses (equities, advisory etc.) – all in the name of cutting costs!
Commodity markets. Oil continued to rise in price – the barrel of Brent topped $115; but the Thursday rumours about Europe postponing sanctions against Iran have caused a collapse. US natural gas continues to fall hard – and the process is even accelerating, so that it now worth as much as when the price of oil was a measly $30 per barrel. Industrial metals rapidly grew in price – aluminium excelled especially, jumping by 10% in a few days; not far behind were the precious metals. The reaction of food and feeder on the ECB emission wave was much more restrained: in general, there is a sluggish growth – but oats, corn, pork and milk have even cheapened. Stormy flights were shown by the orange juice on US exchanges; it rose in price by 20% on Monday and Tuesday – but went back on Wednesday and Thursday, and jumped again on Friday; for the first time in a while, coffee and cocoa showed signs of life.
The shadow side of the Earth
Asia and Oceania. In November, Japan’s index of leading indicators won back the previous fall; the index of economic observers grew up too in December; for the first 20 days of December the Japanese trade balance showed a deficit – and the annual decline in exports has accelerated. China's trade surplus exceeded the forecast in December – but what worries is that the annual increment of exports and imports were lowest in 2 years; foreign currency reserves fell in the fourth quarter (by $20.5 billion) for the first time since 1998. Chinese producer prices fell in December by 0.3% against November, and the annual growth rate showed a 2-year minimum of +1.7%; consumer price inflation is at the 15-months low (+4.1%) – but food continues to rise (+9.1% versus +8.8% in November). New loans of Chinese banks were stronger than expectations in December – but for the whole year they pretty much coincided with the central bank’s forecast, reaching 7.47 trillion yuan. M2 accelerated to +13.6% y/y (in November it was +12.7%). Trade surplus of New Zealand shrank because of sagging exports, while building permits fell by 6.4% m/m; the similar figure for Australia surged by 8.4% - but have not recouped for the fall of the previous month (-10.7%), while the sales of developments grow; in general, the construction sector of the Green continent is in a depression, the number of vacancies is reducing, and retail is barely alive. And the crisis is everywhere: for example, production falls in Malaysia, and GDP does so in Singapore; and so on - throughout the region the picture is pretty grim.
Europe. Germany's GDP grew by 3.0% in 2011, the bulk of which came in January-March – thanks to the restoration after a very cold December of 2010. Moreover, for the October-December the authorities expect -0.25% - that will be the first decline since 2009. The same is true for the eurozone – evaluations of the leading institutions shows -0.3% in the fourth quarter. Finally, NIESR estimated the British GDP in the last quarter of 2011 at +0.1% - that can actually be 0.0%: as you can see, Europe is sliding rapidly into recession. Industrial production in Britain dipped by 0.6% m/m in November, bringing the annual decline to 3.1%; the eurozone declined by 0.1%, also October was revised downwards – of the leading countries only France has pleased, while Spain and Germany are upsetting: that is despite the fact that the warmest December in 130 years has created a surge of construction output in Germany (+4.5% m/m and +10.9% y/y) – everything else is very bad. Orders for machinery and equipment in Germany dipped sharply in November (by 12% y/y); capacity utilization falls in France – and only the investors’ confidence in the eurozone has stopped its relentless decline. Trade balances of Germany, France and the eurozone as a whole improved in November, and of Britain – worsened; consumer inflation slows down slowly in the region – as well as producer prices. Irish mood deteriorated sharply; Greek unemployment goes up – in general, everything is bad here too.
America. The Fed’s Beige Book painted a fairly rosy picture - except for the real estate market, everything was good in December: hence it follows that no hint of further monetary easing should be expected from the next meeting (January 24-25). Trust of the US small business improved in December; Philadelphia Fed index, however, was revised downwards. Building permits sat down in Canada by 3.6% in November – but after 11.6% take-off in the previous month this is not terrible. Indicator of economic optimism in the United States from IBD/TIPP increases for five consecutive months; consumer sentiments form the University of Michigan and Bloomberg continued to improve in early January; consumer credit showed the highest growth since 2001 in November – so, everything is fine? Not at all. The trade balance deteriorated in November because of an unexpected decline in exports; in early January pre-existing jobs have been actively eliminated – and applications for unemployment benefits haveincreased; retail sales in December were weak despite the coming holidays – and if adjusted for inflation (the real one) we get a drop of per capita sales by 0.4% m/m and 1.0% y/y; finally, according to ICSC-Goldman Sachs, the collapse of purchases at the beginning of the year was extremely strong – recouping all the festive joys. Without the stimulus the demand is weak – and the possibilities of the Treasury are limited: deficit is swelling and earnings grow slower than even the official inflation rate.
Source: U.S. Census Bureau, the independent evaluation
Russia. According to Rosstat, inflation rate in 2011 was 6.1% - minimum since 1991: well, who would believe it? Utilities rose by only 12.5% (really?); in the first week of January general rise in prices again did not exceed 0.1% - this way one could show a deflation before the elections. Study of the Institute of Sociology found that 59% of Russian citizens are poor – that is by the usual standards; and by EU standards the percentage of “disadvantaged” (poor and lower middle class) is greater than 90% - and, unlike in Europe , our poor are not the welfare-recipients but the employed: in light of the authorities’ ambitious plans to attract Asian migrant workers, the situation could even get out of control – and even against the background of fanfare about the great successes even Rosstat shows the increasing number of poor in 2011. Capital outflow in 2011 reached $84.2 billion – this is the second worst year since 2008. Politics are familiar: Volodin begins to “cleanse Surkov’s people” in the administration; the brother-in-law of Tajik President (former is a drug dealer) was released from the prison in exchange for a Russian pilot, apparently taken hostage in Dushanbe (allies, you say?); Head of Russian Federal Space Agency Popovkin hinted that the failures of his departments are due to sabotage – not for nothing that another satellite failed “on the shadow side of the Earth, Russia-wise”! Putin talked with fishermen – and vowed to tame the saboteurs; Onishchenko branded Ukraine, where vets are now watching for diseases outbreaks – he said that the people there are “likened to animals”, so we should increase our vigilance. Of course it is necessary: we had no doubt that as we move from one victory of the sovereign democracy to another the class struggle would escalate everywhere – and at the elections everyone would be convinced of it!
Have a nice week!
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