This objective report concisely summarizes important macro events over the past week. It is not geared to push an agenda. Impartiality is necessary to avoid costly psychological traps, which all investors are prone to, such as confirmation, conservatism, and endowment biases.
How effective have the sanctions been in moderating Iran’s behavior up to now? Current indications are not much, despite the damage inflicted on the country’s economy. On 9 January Iranian President Mahmoud Ahmadinejad said that Iran should establish more processing industries in the oil and gas sectors to reduce dependency on exports of crude oil and that the budget plan for the next Iranian year of 1392 (to start on 21 March) envisaged less dependence on crude oil revenues as the government intends to replace crude oil exports with oil derivatives to allow the nation’s economy to participate in the oil sector’s lucrative downstream industry.... A regime that has weathered more than three decades of tumult in its efforts to construct an Islamic society seems unlikely in an energy-starved world to ameliorate its behavior solely to please the dictates of Washington, Brussels, the UN and Canberra. And oh, on 14 September 2012 the United States exempted Belgium, Britain, the Czech Republic, France, Germany, Greece, Italy, the Netherlands, Poland, Spain, and Japan from complying with the sanctions for another 180 days, a list that was expanded on 8 December to include China, India, South Korea, Malaysia, Singapore, South Africa, Sri Lanka, Turkey, and Taiwan.
The main events of this week, monetary policy meetings at the BoE and the ECB on Thursday, are not expected to bring any meaningful changes. In both cases, banks are expected to keep rates on hold and to hold off on further unconventional policy measures. While significant economic slack still exists in the Euro area, and although the inflation picture has remained relatively benign, targeted non-standard policy measures are more likely than an interest rate cut. As financial conditions are already quite easy in the core countries, where the monetary transmission mechanism remains effective, the ECB’s first objective is to reverse the segmentation of the Euro area’s financial markets to ensure the pass-through of lower rates to the countries with the most need for further stimulus.
Worldwide, more than eight-in-ten people identify with a religious group. A comprehensive demographic study of more than 230 countries and territories conducted by the Pew Research Center’s Forum on Religion & Public Life estimates that there are 5.8 billion religiously affiliated adults and children around the globe, representing 84% of the 2010 world population of 6.9 billion. These five charts sum up the age, size, geography, and power of the world's major religions.
The Eurozone was once again engaged in burning the midnight oil, in yet another futile endeavor, this time setting the stage for a common bank supervisor in the face of the ECB, which is somehow supposed to "regulate" Europe's thousands of banks. That this was a total practical dud can be seen in the response of the EURUSD to the news. However, for those interested in the theoretical nuances, whose actual implementation has once again been kicked into the future, here is a quick and dirty primer from SocGen.
The upcoming week is comparatively less loaded with policy events, though the ongoing fiscal cliff negotiations in the US remain one of the key developments to follow. Important is also the FOMC meeting on Wednesday, where Goldman and everyone else now expect the Fed to increase their monthly asset purchase target under the QE3 program to $85bn per month, up from $45bn per month; this will keep the pace of asset purchases constant after the Operation Twist expires at the end of December, as Zero Hedge predicted the day QE3 was announced. There are is a handful of other central bank meetings in emerging economies (Russia, Indonesia, South-Korea, Philippines, Chile) although consensus expects no change to the base-rate in most cases. On the data front industrial production numbers for October will be released around the world including in the Euro-area, US and China. We also get the US retail sales number and December flash PMIs for the Euro-area and China.
Americans Have Less Access to Justice than Botswanans … And Are More Abused By Police than KazakhstanisSubmitted by George Washington on 11/28/2012 14:57 -0500
U.S. Scores Towards the Bottom of All North American and Western European Nations
The upcoming week comes less loaded with policy events. The only major one is the Eurogroup meeting on Monday, however EU officials have already confirmed that no decision on the next Greek aid tranche will be made before the Troika’s next report on Greece’s adherence to the bailout conditions. Greece has scheduled an auction for Tuesday in order to roll over €3.1 bn in T-bills expiring by the end of the week. Additionally, in the US, the President has invited leadership of both parties for a first round of talks on the fiscal cliff. The data calendars also look lighter, with the publication of the FOMC minutes on Wednesday, and US Philly Fed on Thursday.
It is cloudy out there as Sandy enters the mid-Atlantic region, although for all the pre-apocalypse preparations in New York, the Frankenstorm may just be yet another dud now that its landfall is expected to come sufficiently south of NYC to make the latest round of Zone 1 evacuations about overblown as last year's Irene hysteria (of course it will be a gift from god for each and every S&P company as it will provide a perfect excuse for everyone to miss revenues and earnings in Q4). That said, Wall Street is effectively closed today for carbon-based lifeforms if not for electron ones, and a quick look at the futures bottom line, which will be open until 9:15 am Eastern, shows a lot of red, with ES down nearly 10 ticks (Shanghai down again as the same old realization seeps day after day - no major easing from the PBOC means Bernanke and company is on their own) as the Friday overnight summary is back on again: Johnny 5 must defend 1400 in ES and 1.2900 in EURUSD at all costs for just two more hours.
Since the 2008 financial crisis the foundations of the global economy have been in repair, translating into a prolonged period of economic frailty. Against this backdrop, social and political tensions have increased between citizens and government, international institutions and governments, and individual nation states. The European debt crisis remains the largest challenge facing the global economy. A negative resolution emanating from the world’s largest economic bloc would cause harmful ripple effects worldwide in global trade flows. More importantly, it could also mark a paradigm shift in international relations, dealing a critical blow to what has been a relentless trend towards liberalism since the end of World War II, while providing fecund ground for a resurgence in realist ideology. Interestingly though, constructivism may be at the forefront in explaining the current dilemma between the European core and its periphery. It would also be wise to ponder the idea of whether a supranational government could exist. Proceeding down a path with a likely dead end would consume precious resources and lead to widespread suffering among every day citizens.
Him, with his big foot in his mouth
Don't Read This ... It's Totally Irrelevant, Old News, Who Cares, Americans Are Above the Law, We're Exceptional (and Anyone Who Criticizes anything our Government Does is a Commie Fascist Turruristicalist Moooooslim)
After starting the overnight trading at its lows, the EURUSD has once again seen the now traditional overnight levitation, this time with absolutely no economic news, in the process raising equity futures across the Atlantic, even as unfounded Chinese optimism for more liquidity has waned leading to the SHCOMP closing down 0.3%. Perhaps the most notable event in the quiet trading session so far has been the surge in 10 year Greek debt whose yield has tumbled to post-restructuring lows, driven by more and more hedge funds piling in to piggyback on Dan Loeb's recent public GGB purchase announcement (strength into which he has long since sold), and hopes that Greece will somehow see an Official Sector Initiative (OSI) to make recovery prospects for Private Investors more attractive: a capital impairment the ECB has said would happen only over its dead body. But in the new normal, facts and rules are for chumps, and only exist to be broken. More on this amusing stupidity here. Amusingly, this comes just as Greece’s Staikouras says the economy’s downward spiral is not over yet. But, again, who cares about fundamentals.
We have been very active in our discussions of the impact of the pending rise in food prices around the world (from central bank largesse to weather-related chaos). As Goldman notes, food inflation has been one of the most significant sources of headline inflation variation in emerging markets (EM) over the past few years. Since June, international prices for agricultural commodities have risen almost 30%, increasing the risk of fresh, food-related increases to EM headline inflation. We, like Goldman, expect EM headline inflation to start to reflect the relevant pressures more broadly in the October prints at the latest. While the effects, for now, are expected to be less extreme than the 2010-2011 episode, the timing as the US enters its fiscal-cliff-prone malaise, could mean a further round of easing will reignite this critical inflationary concern.
- Italy rejects need for EU control (FT)
- ‘Worst US quarterly earnings since 2009’ (FT)
- Chinese firm helps Iran spy on citizens (Reuters)
- World Bank cuts East Asia GDP outlook, flags China risks (Reuters)
- Foxconn factory rolls on in spite of strike (China Daily)
- Economic recovery ‘on the ropes’ (FT)
- Japan Tries Cars That Make the Mini Look Maxi (Businessweek)
- Euro Finance Chiefs to Give Positive Greece Statement, Rehn Says (Bloomberg)
- Romney attacks drones policy (FT)
- Euro zone mulls 20 billion euro separate budget (Reuters)
- Hong Kong’s Leung Seeks Turnaround With Economy Focus (Bloomberg)
- RBA Keeps Some Documents Private in Securency Bribe Probe (Bloomberg)
- India Inflation to Remain at 7.5%-8% Till Early 2013 (WSJ)