Good afternoon. Kazakhstan held an election - and since democracy there is even more sovereign than in Russia the victory of local United Russian was more impressive; international organizations reasonably stated the lack of voters’ freedom – badly hurting the authorities of Astana so they threw out the observers and decide not to resort to their services anymore. Non-sovereign democracy has its drawbacks – US President can witness so: on one occasion a young Latino shoots at the White House “by God’s demand”, and on another the protesters occupying Wall Street fire smoke bombs – Obama himself, however, was not in place for he celebrated the birthday of his wife... in the nearby steakhouse. A giant cruise ship sank near the coast of Italy (there are victims) – Russians too were among the evacuees: one of them, on meeting with a representative of the company-owner, demanded... orthopedic insoles – and attacked the offender when he only got €50; aggressive sufferer was even had to be arrested.
Illustration: Artem Popov
Monetary markets. Of the leading central banks only the Canadian one has met – as expected, it kept the rate unchanged at 1.0% per annum and complained on deteriorating situation in the world; no surprises are expected from the Fed’s meeting next Wednesday too – but promises to give more detailed information and Bernanke’s press conference attract attention. IMF wants to build up credit resource for another €500-1000 billion – at the expense of Japan and the BRIC countries, and the agreement should already be reached at the summit on February 25-26; we can’t speak for the others, but in Russia there are elections in March so it is unlikely that Putin will go for an unpopular move. Agencies are working hard: Moody's upgraded the rating of Indonesia, Fitch downgraded forecast for Russia from positive to stable. S&P continues to be malicious: it cut the ratings of nine eurozone countries – the highest mark was lost by France and Austria, while Italy and Spain lost 2 points at once; soon the same fate will reach the European stabilization fund – in response, police visited the agency’s office in Milan. Fitch threatens to reduce the rating of Italy by 2 points; the storm passed by Germany – but a second-rate agency Egan-Jones did hampered her, leaving the negative outlook. All this did not affect the placements: only Portuguese auction was average – however solid were Stabilization Fund, Germany, France, Belgium and Spain in particular who got 65% more than expected and acquired 20% of its borrowing plan for 2012 in the first three weeks of January.
Currency markets. Euro reached lows around $1.26, and then began to crawl up slowly. Net short position on euro reached a new record – again, fraught with a very sharp rebound. The Swiss Finance Ministry hints that the cross-rate of euro-franc should grow up to 1.35/40 - but it plucked fell to 1.20. However, overall the market is still very quiet – it seems that the current January will be the quietest on FOREX for many years.
Stock markets. Aspirations of the new programs of IMF, coupled with the efforts of the ECB to supply markets with liquidity gave another wave of optimism to the exchanges – albeit of a very moderate one: but the Dow is already very close to the peak of last spring. Citigroup report is disgusting – profits and revenues fell significantly and fell very short of the forecasts; Wells Fargo did better – although decline in sales is alarming as are the interest rate spreads (difference between interest rates on loans and deposits). Profits and revenues of Goldman Sachs fell almost by half; Morgan Stanley has a loss – although smaller than feared by analysts; Bank of America didn’t meet profit forecasts, but good revenues and sharp reduction of bad assets pleased the observers; American Express distressed with sales – in general, financial sector is not particularly optimistic. Profits of Google was 10% worse than expected – revenues were not very good too; Intel is decent; Microsoft reported well in comparison with expectations – but profits are below the figure of last year; revenues of IBM coincided with the forecast – but profits were expected to be higher: so, too, technological monsters feel uncomfortable and the dull report of General Electric suggests the same idea with regard to industrial conglomerates. Sony Ericsson hit a loss of quarter of a billion euro; Eastman Kodak went bankrupt after 130 years of operation: the company saw 5 years of losses, -$1.7 billion of capital, seven thousand people employed in home office compared to 60 thousand at the peak of success – and the shares costing $100 apiece 15 years ago and depreciated now down to 36 cents.
Source: Yahoo Finance
Commodity markets. Oil Minister of Saudi Arabia al-Naimi wants to see oil in the region of $100 per barrel – for a while it does fluctuate around there; however, US natural gas continues to fall vertically – it is already at the lows of the beginning of the 2000s (remember how much was oil then?). Industrial metals have grew slightly – except for sluggish nickel; a similar pattern is in precious metals. Cereals, pulses, feeder and vegetable oil settled down; meat rose in price (beef is at its peak), and milk dipped sharply; sugar and cotton have been growing while fruits continued to fly up and down.
Asia and Oceania. The World Bank has lowered the forecast for global GDP growth in 2012 to 2.5% (six months ago it promised +3.6%); the USA is promised +2.2% (against +2.9%) and the eurozone -0.3% (instead of +1.8%); decline in emerging markets is not excluded too, particularly in Mexico and India. In China GDP grew in October-December by 2.0% q/q and 8.9% y/y versus +9.1% in the third quarter, +9.5% in the second and +9.7% in the first; but that is still better than expected; in general for 2011 there was an increase of 9.2% after +10.4% in 2010. Capital investments fell in December against November, but there was a significant annual growth (by 23.8%) – however, foreign direct investments have gone sharply negative before the end of the year in comparison with the end of 2010 (-9.8% in November and -12.7% in December). Industrial production and retail sales confidently surpassed the forecast for December – but annual dynamics in both cases are slowing down (+13.9% versus +15.7% in 2010 and +17.1% versus +18.4% respectively). Housing prices continue to decline in recent time; manufacturing activity according to HSBC remained in the area of recession in January – while business sentiments improved slightly; overall situation in the Middle Kingdom is unstable – but so far no more.
In Japan, early in the year 7 of 9 regions reduced their assessment of the economy, while other two left it unchanged; industrial production for November was revised further down (to -2.7% m/m and -4.2% y/y) – but engineering orders soared by 14.8 % against October; activity in the services sector has decreased markedly, as did the general indicator of activity in all sectors of the economy – but leading indicators rose and consumer confidence took a little revenge after falling; wages were falling – but sales at department stores rose against December; in general, the picture is mixed – but not too optimistic. In Australia, consumer sentiment has improved markedly in January due to the general optimism in the world; objectively, however, things are not too good: vacancy announcements are less (as in the neighboring New Zealand), employment falls actively, so that 2011 was the worst year for the labor market of the Green continent since 1992. In the New Zealand, inflation abruptly went into a minus before the year’s end and business confidence had fallen – consumer spending continues to shrink. Equally bleak are the figures in other parts of Asia – for example, in Turkey unemployment increased significantly already in the autumn; industrial production falls in Taiwan – and so on.
Europe. In Spain and Italy industrial orders were weaker than last year; output in the eurozone’s construction industry is at the long-term bottom. Leading indicators accelerated their decline in Britain; economic expectations from ZEW improved for the eurozone (especially Germany) and Switzerland – the reason is the powerful infusion of liquidity by the ECB before the New Year. Italy's trade deficit in November rose by 1.5 times against October; eurozone’s current account balance again showed a deficit – and the balance of direct investments continues to deteriorate. Wholesale prices in Germany increased in 2011 by 7.5% - a record since 1981; against December the annual increase shrank to 3.0% (lowest figure since 2010); in Switzerland producer and import prices grew up – but they are still in the red against their 12-month-old values. Consumer inflation continues to slow down in the eurozone and Britain – however, if you remove the statistical distortions the prices are 6-7% higher than a year ago; housing is getting cheaper in the UK – except for London, where it is actively going up. Belgians are in the worst mood for 2.5 years; Britons’ confidence is at the record bottom; ILO unemployment rate jumped to the peak since 1994 – though at the end of 2011 there was some stabilization; employment also falls in Sweden. New cars are ever less, except for Germany; sales in the service sector of Spain are weak; French retail contracts (-3.1% y/y at the central banks’ assessment), while the British could only arrange a temporary re-bounce in December; spending of the Dutch are falling – in general, demand is frail and continues to decline.
America. Industrial production grew in the United States in December by 0.4%, recouping 0.3% drop in November. Index of the Federal Reserve Bank of New York has grown - but manufacturing sector is not the most important one for the region; Philadelphia Fed index has improved only because previous month was revised down – and the new orders component is bad. Foreign money again flowed into US securities in November – main contribution was madeby Japan and Britain, while the BRIC countries have continued to withdraw money from US treasuries. US producer prices sat down in December, but without fuel and food the annual increase reached a peak since June 2009 (+3.0% and in fact +4.8%); the same picture in consumer prices – here is a peak since September 2009 (+2.2%, actually +5.4%); Canadian inflation has weakened considerably. The number of construction developments is smaller because of the multi-apartment buildings – and the main indicator, the number of houses actually being built, everything is bad: both in general (-0.2% y/y) and in single-family (-11.1%) – another record bottom; secondary market is slightly alive – but no more. House builders noted the growth of demand in January: NAHB Housing Market Index is at the peak since June 2007 – although only 25% of those witnessing improvement is not particularly cheerful. In mid-January, the index of consumer comfort from Bloomberg turned down; figures of unemployment are rushing rapidly due to problems with the seasonal adjustment for January; trade in stores is sluggish, wholesale sales fell in Canada – in general, it seems, in the middle of winter the momentum in the economy began to decline.
Source: U.S. Census Bureau
Russia. The federal budget surplus in 2011 amounted to 0.8% of GDP – and if the treasury has financed expenditure as expected (expenses were 1.7% lower than prescribed in the plan), then only half would have remained; in December there was a deficit of 18.3% of GDP – as always. Gold and foreign currency reserves at January 13 fell to a minimum in 10.5 months. Banks have a shortage of liquidity – and the Western funding channels are closed; since the ratio of reserves to deposits is still at the record bottom, any depositors’ panic is fraught with sad consequences – therefore the Bank of Russia must be alert, once it has allowed this situation. Authorities have the recipe: Ministry of Finance believes that people are fleeing from taxes with cash – which should be banned; Sberbank CEO Gref also wants to transfer wages, pensions and benefits only to bank cards – in general, people have no money and banks have no liquidity! Voting fraud scandals have unexpected consequences – no one wants to join the election commissions: it is scary – that is the best evidence of mass fraud in the last election. But the authorities have no reason to be depressed with such opposition – flickering of moth-eaten politicians led to the fact that Putin's approval ratings rose; and if they would pull forward Gorbachev, the current prime minister would win easily in the first round.
Illustration: Artem Popov
Candidate Prokhorov said he is ready to become prime minister under President Vladimir Putin (but who said that?) – but if he wins, then Kudrin will lead the government: from bad to worse. Generally, all candidates are competing in the giveaway to power – which, however, behaves stupidly: they again wire-tapped opponents and posted the record – and it seems to be edited a bit. Putin solemnly passed automobile technical inspection – and was glad that the whole procedure took just half an hour: now he should pass the procedure for every citizen of Russia – since for other people it usually does not go so smoothly. Gossip column shines –Chubais left another wife and married the TV presenter Dunya Smirnova; TV-show about pornography was visited by hellish Dzhigurda making the ugliest brawl and even a fight. All is usual: selected idiots are among politicians and common idiots are in the crowd – and this boorish rabble thinks other people are idiots, and that is mutual. Boring, ladies!
Have a nice week!
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