Of the events of last week, we note a strong (several powerful shocks with magnitudes up to 8.6) earthquake near the Indonesian island of Sumatra – the inhabitants of coastal areas of neighboring countries feared a tsunami, but it didn’t happen. In Greece, the parliamentary elections were scheduled for May 6; in France they will be held next week, on April 22 – “and the great Lenin will light their way”. United States will elect the president only on November 6 – but the participants of the action are almost known: the main candidate of the Republican conservatives Catholic Santorum left the race due to illness of little daughter – thus opening the way to Mormon raider Romney, whose chances against Obama seem modest, because he is too gray and dull even in comparison with the overexposed Nobel laureate. News in the world of crime – Brits judged robbers of jewelry stores across Europe, from Stockholm to Monte Carlo: as it turned out, the villains were hot Estonian guys – to much of amazement of the European law enforcements, poorly familiar with the perpetrators of such an exotic breed.
Palestinian thugs are much better known – and now their ringleader (sorry, respected leader of the Hamas) Mashaal urged his tribesmen to kidnap Israelis more actively: it is supposedly the most “profitable action” in our time – what is characteristic is that unscrupulous Europeans are not in hurry to imprison this “bandit in law”. And what's more – they easily bend themselves under the Muslims, especially rich ones: Spanish football grandees Real and Barcelona removed crosses from the coats of arms – at the insistence of the Middle East money sheiks, clubs’ sponsors. British scientists™ are on the alert - together with colleagues from the United States, they “discovered” that homophobia is a sign of latent homosexuality; given the number of citizens around the world not tolerant to sodomites, we can conclude that genuine homosexuals account for more than half of the world’s population – this conclusion truly deserves the Ig Nobel prize with the wording “for the creation of Freudian mental derivatives of second order”, the more so because the “scientific methodology” of the giants of thought has not gone beyond the limits of children's saying “who call names is such himself” and that in our time is alone worth of the highest academic regalia.
Illustration: Artem Popov
Monetary markets. Central banks of Russia, Korea, Indonesia and Japan left rates at the previous levels; the latter has also did not change the size of the asset repurchase program - to the disgust of politicians who urged the central bank “to fight deflation” with shock emission: the upper house of parliament has even turned down the nomination of an economist Kono for the post on the board of the regulator, since he was not eager “stimulate the economy” non-stop. History teaches nothing to some: Bank of Japan has already “gave battle” in 1999-2003, diligently printing money, so that the base swelled by 30% every year – but deflation did not go anywhere; and when the central bank admitted defeat and ceased emissions, inflation returned – probably in a row of sophisticated mockery about the nonsense of monetarist alchemists. It is pretty much the same in the USA: according to Reuters, 10 of the 15 primary dealers in the bond market expected another round of quantitative easing of $600 billion in June. These suspicions seem to have visited the Egan-Jones agency too - which, in anticipation of emission, decreased the US sovereign rating for the second time; however, leading agencies are cautious – and the latest Beige Book does not give grounds to expect a quick sharp easing of the Fed policy.
In Europe, the euphoria about the ECB emission is evaporating actively. Auction on placement of Italian government bonds were bad – yields increased significantly against the previous events; also unsuccessful was the German auction – demand exceeded supply by only 10%, forcing the authorities (they care about minimizing the interest) to limit the sales by value more than 20% lower than planned. Debt and banking problems of Spain came back into spotlight –10-year Madrid securities’ yields soared to highs since December while spreads with similar German bonds set peaks since November. In response, the government is going to cut Treasury spending harder – further 10% cut in education and health was announced, and at the same time the privatization of banks with state participation will accelerate. In turn, the ECB has signaled that it is ready to resume the purchase of Spanish bonds – if need be, of course. The most innovative methods of filling up the coffers, as always, the Greek ones – they rent out... police: €30 per hour and you can take a cop, €50 – add the dog; the bike will cost an extra €20 per hour, patrol car - €40, truck or crane - €90, bus - €120, motor boat - €200, helicopter - €1500.
Currency markets. Main rates moved very lazy all week – perhaps only yen grew up a little and ruble fell slightly; in general, FOREX remains dead quiet.
Stock markets. Leading stock exchanges slipped by renewed fears about euro – but then won back; though not all – the Spanish index has broken through lows of last year and is on the way to the crisis bottom. Reports season for January-March has started – as usual, it was opened by Alcoa: this time its performance was significantly better than market expectations – profits rather than losses, and preserved revenues against the forecasts of its decline; the stocks were awarded with a hefty growth. Reports of J.P.Morgan Chase and Wells Fargo look quite good – at least, they have exceeded expectations; but after Alcoa market took them cold. Results of Google were generally similar to the forecasts – also the company arranged a non-orthodox split: for each share of common stock shareholders will receive one more paper - but a “not voting” one. Of the other things we mention plans of Sony to lay off 10 thousand people this year (6% of staff) – in the recent financial year the company received a record loss and hurries to take measures.
Commodity markets. All week the media was filled with the passions of oil. Iran was offended by the EU sanctions, and stopped supplies to the region – Germany, France, Britain, Italy, Spain and Greece all got into the black list. However, the market ignored the news – it was long expected; but the continued growth of stocks in the USA has lowered the prices – and not it alone. It became known that in the previous month (from mid-February to mid-March) the Americans’ demand for gasoline and diesel fuel was 7.8% lower than a year ago – and this does not imply a similar decline in travel: for example, in December last year the cost of car fuel fell by 2.5%, although overall mileage rose by 1.3% - surge of car purchases in recent months appears to have been used to replace old power hungry monsters with modern efficient vehicles, so that even with the previous volumes of travel a reduced consumption of gasoline is likely.
All this coupled with the uncertainty around the Federal Reserve emission causes institutions (mostly hedge funds) to cut the size of their long positions in fuel – thus pushing prices down. And they fell: Brent fell below $120 per barrel – though briefly; WTI did not support this impulse and choose to remain at previous levels, and then even grow. But natural gas in the United States still falls – it had dropped below $2 for 1 MMBtu, and that happened for the first time in 10 years; while inflation-adjusted price is now at a minimum since the summer of 1946. Industrial and precious metals stood still – except for the falling copper and growing gold. Grains sat down slightly (except rice), but legumes, oil and feeder continue to stand on peaks; prices of meat, milk, cotton and wood stabilized; cocoa and coffee look very weak, and fruit again fell sharply.
Asia and Oceania. OECD happily reported that in February the Asian countries (China, Japan, India, Indonesia, South Korea) have “regained growth momentum” – but they have since lost the momentum again, though not all of it. China's GDP in the first quarter grew less than the official forecast (and much worse than the rumors circulating on the market): +8.1% - minimum since the bottom of the crisis; during the same period industrial production, retail sales and investment slowed down; trade balance was essentially at zero (a surplus of only $0.67 billion) – and this figure goes down for the fourth consecutive year. PPI in March went into minus on annual basis (by 0.3%) – as expected; CPI exceeded forecasts, rising by 3.6 % y/y (against 3.2% in February). The sharp rise in new loans of the Chinese banks (by 1.5 times at once) caused acceleration of M2 money supply – and made it clear that the Chinese authorities are on the alert, faced with a slowing economy. Japanese figures are generally optimistic: engineering orders rose in spite of fears of recession, the index of economic observers returned to the zone of expansion (though it reflects the current situation – while the leading indicators sank); wholesale prices are rising, the money supply and bank credit is in the green. Also pleased the Australian and Korean unemployment; and the grief was the industrial production of India, which turned out much worse than analysts' expectations; Australian mortgage falls as does the mood of consumers (they are on 8-month bottom), and in the New Zealand activity in the production sector slipped markedly.
Europe. Performance figures of Europe are going from bad to terrible: in February industrial production in France grew by 0.3% m/m due to public utilities, but remained in the red in annual dynamics (by 1.7%), while the manufacturing sector has fallen by 1.2% m/m and 3.7% y/y; the same pattern is in the eurozone as a whole, where the rise in energy demand (by 7.7% m/m) has distorted the overall result – but the annual dynamics is unambiguously negative; production in the Netherlands fell by 0.7% after -2.8% in January and the annual decline increased to 3.3%; Italy and Spain have gone deeper into recession; production in Sweden fell by 5.2% m/m and 7.1% y/y, while production orders fell by 5.5% and 8.3% respectively; the Norwegian production shrank by 0.6%, but remained in positive territory against the same month a year ago; and finally, the index of investor confidence for the eurozone from Sentix also suddenly collapsed in April. Trade balances of Germany (surplus), France and Britain (deficit) have worsened in February. Wholesale prices in Germany and the UK producer prices are galloping – the same dynamics is in the consumer prices in France and Italy, which even saw an increase in annual dynamics; but the British housing (according to RICS) depreciates at the lowest rate since June 2010. Unemployment rate in Greece reached 21.8% in January – so that by now it might have broke the Spanish record; the situation with jobs in Britain (report of KPMG/REC) worsened a little in March – but sales at stores accelerated due to warm weather.
America. Confidence of small business in the United States unexpectedly collapsed in March –entrepreneurs speak of weak demand, and show no willingness to hire. The trade balance has improved markedly in March due to decline in imports by 2.7% - there is a suspicion that the statistics have messed with seasonal adjustment of fuel prices: the same has distorted the dynamics of producer prices – they allegedly haven’t changed adjusted for seasonal factors, although without it there is an increase of 0.9% m/m in final goods and by 1.3% in all; rise in import prices by 1.3% m/m has only increased the abovementioned suspicions. Consumer prices swell rapidly – excluding food and fuel their growth is at the peak of the autumn of 2008. Canada's trade surplus shrank, housing rose in price, and the number of new buildings jumped. Consumer credit in the US rose again – but we have already noted that the bubble of student loans issued by the government is to be blamed, being issued to everyone including retirees. Incidentally, the latter distinguished themselves on the labour market: since the official “end” of recession in June 2009 there were 1.84 million new jobs created – but among people older than 55 years employment has grown by 2.96 million, i.e. younger people have the fall (or at least stagnation) in employment up to this day. By the way, weakening employment trend coupled with the jump in the number of initial applications for unemployment benefits suggests that even the ephemeral recovery of labour market which took place is over now – however, the statisticians’ error could not be ruled out here too. Further deterioration of the Treasury is clear: in March its deficit was higher than last year - and there is no foreseeable end to this process.
Russia. In March, the federal budget went into a mini-surplus – but for the first quarter it has remained in negative territory at 0.9% of GDP. In 2011, the number of people with incomes below the subsistence minimum rose against the 2010 – that is the official minimum, which has little relation to reality. The monetary base has slowed down again, bank reserves fell too, while their ratio to deposits has reached a new low – and the credit bubble still inflates: on February 1, individuals’ debt on ruble loans was 41.5% higher than a year ago, then this rate has accelerated – reaching a peak since the end of 2008. Ministry of Economic Development decide to protect seniors from management companies losing their savings – it offers to insure them; presumably, we will soon have pension derivatives – since to excluded the invisible hand is clearly not what the government wants. Putin carried out the usual nonsense in Duma (“all is well, my marquis”) – especially touching is the self-praise on the high fertility rates: but it's just the excessive generation of the second half of the 1980s has reached the peak of fertility, while the average number of children per one woman is still below the Soviet lows, as well as US figures or (if you wish to measure against the cold countries), Canada and Sweden; and the synchronous growth rate in Central and Eastern Europe suggests that Russia merely mirrors the global process - so the merit of Putin’s wise policy is quite low.
Source: Demoskop Weekly
Feats of Russian officials grow – and the law enforcements are wonderfully favorable to them. Speculation of Gazprom shares by Deputy Prime Minister Shuvalov did not ring the bell of Attorney General's office; President’s Chief of Staff Kozhin bought 8 hectares of land in the exclusive Gorky-10village for $50 per hundred square meters (about 2000 times lower than the market value) – authorities insist that he was “just lucky” to get this tidbit; excessively zealous journalists are threatened with punishments. Income declaration of Deputy Prime Minister Sechin states that he, an extremely poor guy as he is, even lost a house with a garage last year – apparently, the high official will soon have to be provided with social housing and subsistence benefits. Volgograd administration spent a vacation with twinkle in the Italian Tuscany – in the same luxury hotel that has recently been enjoyed be Medvedev’s wife. But not everyone is so lucky: for example, the head of Sberbank Gref broke his leg on vacations; in the Chelyabinsk region the village head was arrested for… robbery; Minister of Transport of the Krasnoyarsk Territory was suspended from office because of charges of stealing money from the budget – and during the course of investigations, as was gracefully reported, the official was found possessing “traces of cocaine” (where!?), so it is not clear whether he stole the public cocaine, ot purchased it with the stolen money.
The well-known opposition activist Chirikova put a tent on the Red Square as a “symbol of resistance to illegal government” – she may have wanted to summon the spirit of Lenin from the mausoleum. The work of Resorts of the North Caucasus are very much to the liking of the authorities – its efforts should have set up a heavenly oasis, otherwise it is difficult to understand why the company was given virtually all the resorts of Russia. Better yet is the case of MICEX- RTS – even though she complains that the public enthusiasm has dried up, Medvedev made the visit there – and was upset with the fall in prices of innovative firms. But the market has found a way to beat the blues – declaring that it would work on weekends (May7-8), and on those Saturdays (April 28 and May 5) which were moved on that weekend: in general, they say, we should work together with the West – or we can miss something important. Interestingly, do the stock exchanges of New York, London, Paris, Berlin or Tokyo work on official holidays of their countries? Well – of what kind of respect for the country we are to speak when it comes to big money: but why should you work on Saturdays if the western exchanges are closed? And then there is a plan to extend the regular session up to 23.00 Moscow time – to go toe to toe with New York and then, apparently, to look into Asia and to start trading at about 5AM – what is characteristic is that authorities are on the exchange’s side. We should only hope that the proverbial “financial center” will die without being born – maybe at least in this case someone would sober up and start to live in Russia and not somewhere “between Singapore and London”?
Illustration: Artem Popov
Have a nice week!
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